The New Enron?
Recently the New York Time reported that banks want to move away from GAAP – Generally Accepted Accounting Principles. For years US companies have relied on GAAP as the general rule for financial reporting. GAAP is somewhat a yard stick for the financial condition of US companies. Now the banks are requesting that this be altered a bit to so that they don’t look as bad in adverse financial climates.
Robert H. Herz, the chairman of the Financial Accounting Standards Board said that “consumer spending depends in part on how wealthy people feel”. When I hear talk like this I think, “Isn’t this what Enron did”? Didn’t Enron misrepresent its financials to appear to be a more robust company financially then it really was? But maybe if you ask for governmental assistance to change the rules a bit, it becomes legal.
Herz continued to state that “I (he) support the goal of financial stability and do not believe that accounting standards and financial reporting should be purposefully designed to create instability or pro-cyclical effects.” Again I ask, shouldn’t the financial reporting of a company mirror the financial condition of a company. If the company is sick financially we should say that, instead of potentially making it seem as if the problem does not exist.
Let’s keep an eye on what decisions are made regarding how banks are able to present themselves on paper.