Fact, Fiction, and Fair Value Accounting at Enron

By Robert G. Haldeman, Jr.

The last 30-odd years have produced a paradigm shift in corporate accounting theory. The new theory assumes that the accounting model is broken and must be replaced by an “economically satisfying” method for valuing assets and liabilities. Economic valuation techniques require that accountants abandon traditional accounting principles. Yet, this movement toward fair value accounting has been undertaken without evidence that the valuations produced are actually “better.” In contrast, recent evidence—most notably the collapse of Enron, as detailed in this article—indicates that use of fair valuation has the potential for spectacularly misleading results.

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Publisher's Column

New Pension Accounting Rules: Defusing The Retirement Time Bomb

The SEC and FASB have recently directed their attention to improving the rules for pension accounting. On October 18, 2004, the SEC announced that it was investigating whether six large companies had manipulated earnings when calculating their costs for pensions and retiree health benefits. (The companies were not identified by name.) In particular, the SEC intended to focus on assumptions companies use to calculate current pension expenses. Full Story

Leap of Faith

A little more than a year ago, Steve Langowski, NYSSCPA president for 2005/2006, created the CPA Exam Task Force in response to complaints he had been hearing about the new computer-based CPA exam. At that time, the computer-based test (CBT) was no longer quite so new; students had been taking it for about 18 months, and many were saying that certain aspects of its administration—including scoring, cost, and registration—clearly needed some work.
Less clear, however, was the task force’s ability to affect change. Full Story

The Benefits of Early Controls Assessment

Until now, the Sarbanes-Oxley Act (SOX) section 404 landscape for smaller public companies has been rather quiet, driven in part by a second extension in the deadline for compliance. Moreover, given the negativity associated with the year-1 section 404 certification process and concerns over the high cost of compliance, many nonaccelerated filers have not even committed to any controls assessment process, while others are taking their time until further guidance is available. Full Story

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