July 21, 2002

Solving the Corporate Accounting Problem

From the creatively insane and highly amusing people at sharesite.org: how to solve the corporate accounting problem...

Sharesite: Profit mountains to ward off corporate fraud

The financial world has been rocked by recent scandals involving first Enron and now WorldCom, bringing about a situation whereby an investor does not know if a company's quarterly report reflects reality or is instead an imaginative work of fiction. To combat this new culture of distrust, financial regulators yesterday announced laws which will bring about an end to the traditional quarterly report. From now on, company directors are obliged to present profits to shareholders in the form of hard currency, leaving no room for doubt whatsoever.

The City of London is expected to be changed beyond recognition by the new reporting system, as huge multinational companies, with profits running into the billions, construct immense mountains of coins weeks in advance of their annual shareholder meetings. Majestic glinting piles... so beautiful in their splendour that they bring tears to a young financier's eyes, will dominate the City skyline... "we apply for planning permission to construct the huge mountain of coins by our office near Monument - a mountain which will be roughly equal in size to Ben Nevis. A fleet of specially commissioned ex-military helicopters will, in the final stages, transport the coins from the Mint and place them on top of our profits mountain. People living in the vicinity will be evacuated and rehoused. Then, at the shareholder meeting, all our investors can see for themselves that we are not cooking the books!"

However, not all CEOs are as happy about the new reporting system as Mr Namner. A loose alliance of environmentalists and disgruntled company executives is coming together to protest against the new plans...

Posted by DeLong at July 21, 2002 11:52 AM | TrackBack


The world's greatest accounting bore points out, stupidly missing the joke, that in every set of accounts, you will find a handily provided cashflow statement, the first section of which is "cash from operating activities", and which there is no suggestion that anybody falsified in the recent round of corporate failures. For this proposal to work, investors would have to concentrate on cash earnings and ignore airy statements about investment in growth and new economies ...

Posted by: Daniel Davies on July 21, 2002 11:15 PM

speaking as an accounting bore, I'd also point out that movable type appears to be having an off-by-one-type bug which is causing is to say that there are no comments on this story when there was in fact mine, above.

Posted by: Daniel Davies on July 22, 2002 01:03 AM

Well then, should I cheer you up by saying that someone on the nearly-dormant Rewired list called you one of the best of the other-side-of-the-pond financial commentators?

Brad DeLong

Posted by: Brad DeLong on July 22, 2002 03:03 PM

good god, things must be bad. True story:

Coming through US Immigration on my last marketing tour, I had to do the normal banter;

"What is the purpose of your visit?"

"Some meetings"

"Do you plan to work while in the USA?"

"Definitely not, just meetings"

"What is your profession?"

"I'm an investment banker"

"Gee, you guys are having it pretty tough at the moment, huh?".

I was amazed. At the time, I thought it was a pretty certain bottom-of-market indicator; after all, while we in the industry do indeed have it pretty tough at the moment, none of us are exactly manning the graveyard shift at an INS counter. It just goes to show what nice people Americans really are.

Posted by: Daniel Davies on July 23, 2002 09:58 AM
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