Accounting is becoming a mess of rules that’s almost as complex as the tax code. It doesn’t need to be that way. It isn’t that way overseas:

Accounting standards-setters have come under fire for producing hundreds of pages of rules that cover every conceivable situation a company could face. The much-discussed alternative is to adopt a principles-based approach, where broad-brush standards are used to govern behavior, relying on companies to reasonably apply the rules to their own situations.

But FTN Financial’s interpretation of the new rules shows that when standards aren’t precise, they can leave too much room for improvisation. The flip side to that is also true: When there’s room for interpretation, companies get nervous and ask for rules.

The problem is that accountants, auditors in particular, lack the balls to say no to outrageous schemes put forward my management. In all seriousness, what Andersen did at Enron was to say “yes” to their shenanigans. They didn’t have to, and they destroyed themselves as a result.

Making accounting inordinately complex isn’t the answer. Hopefully, normalization with what goes on overseas will bring some sanity back to the discipline.

Read more here.

This entry was posted on Monday, April 30th, 2007 at 4:01 pm and is filed under News & Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.