Hidden financial risk: understanding off-balance sheet accounting

J. Edward Ketz0471433764, 9780471433767, 9780471468479

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 of directors, 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.

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Table of contents :
Hidden Financial Risk……Page 2
About the Author……Page 7
Contents……Page 8
Preface……Page 12
Part I……Page 16
What? Another Accounting Scandal?……Page 18
Balance Sheet Woes……Page 48
Part II……Page 66
with the Equity Method……Page 68
with Lease Accounting……Page 88
with Pension Accounting……Page 118
Special- Purpose Entities……Page 140
Part III……Page 164
Failure of Managers and Directors……Page 166
Failure of the Auditing Profession……Page 188
Sutton¡¯s Critique of……Page 210
Failure of Regulation……Page 228
Failure of Investors……Page 248
Part IV……Page 266
Andersen Has the Solution ¡ª Really!……Page 268
Bibliography……Page 284
Index……Page 306