Hidden financial risk : understanding off-balance sheet accounting / J. Edward Ketz.

Format:

Book

Author/Creator:

Ketz, J. Edward.

Contributor:

Phi Beta Kappa Library Trust Fund.

Language:

English

Subjects (All):

Accounting--Case studies.

Accounting.

Accounting firms--Corrupt practices.

Accounting firms.

Accounting firms--Corrupt practices--Case studies.

Business ethics--Case studies.

Business ethics.

Genre:

Case studies.

Physical Description:

xiv, 298 pages : illustrations ; 26 cm

Place of Publication:

Hoboken, N.J. : Wiley, 2003.

Summary:

What went wrong and how to fix it

"This is a book that well represents the skeptical, probing, and doubting spirit of the time. Professor Ketz explores the ways corporate management and auditors can ' spin'financial reporting to misinform investors. It is written so that the individual investor can grasp the ideas but will be useful for investment analysts and audit committee members who need a lively briefing in how to spot questionable accounting." - - John H. Biggs Former chairman and Chief Executive Officer TIAA - CREF

"Ed Ketz brilliantly illustrates how the improper application of accounting rules misleads users of financial statements. This book is an indispensable resource and greatly enhances one's understanding of the many obscure footnotes found in today's financial statements." - - Albert Meyer 2nd Opinion Research, Plano, TX

It is now painfully clear that "earnings management" has managed little, other than some short-term gain for a handful of managers and a long-term catastrophic erosion of the public faith in financial reporting. But it is not too late for the accounting industry to turn back from the brink. Edward Ketz lays out several specific problems in the financial reporting arena, describes how the system failed to correct any of these problems, and suggests a compelling course of action for improvement in Hidden Financial Risk: Understanding Off-Balance Sheet Accounting.

Chapter by chapter, Ketz explains how firms hide debt using: The equity method Lease accounting Pension accounting Special Purpose Entities

and then illustrates the failures ofdirectors, auditors, regulators, and investors to detect and eliminate these tools of deception. He concludes by drawing upon his thirty years'experience to propose how the industry can learn to identify fraud and ultimately restore investor confidence. Executives, accountants, and individual and institutional investors will find Hidden Financial Risk to be a powerful examination of the present, shifting accounting landscape.

Contents:

Part I My Investments Went Ouch! 1

1 What? Another Accounting Scandal? 3

Accounting Prophets: "They Have No Profits" 4

A Rash of Bad Accounting 5

Debt? What Debt? 11

2 Balance Sheet Woes 33

Investment Risks 34

Some Ratios That Index Financial Risk 34

Financial Leverage and its Effects 36

Stock Prices and Financial Leverage 41

Bankruptcy Prediction Models 43

Bond Ratings Prediction Models 45

Cost of Lying 46

Part II Hiding Financial Risk 51

3 How to Hide Debt with the Equity Method 53

Brief Overview of Accounting for Investments 54

Equity Method versus Trading-Security and Available-for-Sale Methods 55

Boston Chicken 57

Details about the Equity Method and Consolidation 58

4 How to Hide Debt with Lease Accounting 73

Present Value 74

More Details about Lease Accounting 90

Adjusting Operating Leases into Capital Leases 91

5 How to Hide Debt with Pension Accounting 103

Definitions and Concepts Underlying Pension Plans 105

Brief Overview of Pension Accounting 111

Adjusting Pension Assets and Liabilities 117

6 How to Hide Debt with Special-Purpose Entities 125

Special-Purpose Entity Landscape 126

Securitizations 131

Synthetic Leases 137

Accounting for Special-Purpose Entities 141

Preliminary Corporate Responses about Special-Purpose Entity Accounting 142

Part III Failures that Led to Deceptions 149

7 Failure of Managers and Directors 151

Failure of Managers 152

Failure of Directors 155

Business Ethics: As Oxymoronic as Corporate Governance? 161

Culture 164

8 Failure of the Auditing Profession 173

Securities Laws and the Auditing Profession 174

Evolution of Underauditing 177

Changing Nature of the Big, Independent Auditor 180

Serving the Public Interest 185

Andersen Verdict 187

Young Model: A Reprise 188

Appendix Sutton's Critique of Serving the Public Interest 195

9 Failure of Regulation 213

Failure of the Financial Accounting Standards Board 214

Failure of the Securities and Exchange Commission 219

Failure of Congress 223

Failure of the Courts 227

10 Failure of Investors 233

Failure of Financial Governance 234

More Accounting 235

Enron

A Reprise 238

Rules for Investing 242

Part IV Making Financial Reports Credible 251

11 Andersen Has the Solution

Really! 253

Arthur Andersen Forgets its Roots 255

Purpose of Financial Reporting 256

Socialization 262

Andersen's Accounting Court 263.

Notes:

Includes bibliographical references and index.

Local Notes:

Acquired for the Penn Libraries with assistance from the Phi Beta Kappa Library Trust Fund.

ISBN:

0471433764

OCLC:

51752927