Mark-to-market Accounting: 'True North' in financial reporting (Routledge New Works in Accounting History)

348 Pages·2003·1.44 MB·English

by  W. Schuetze

Mark-to-market Accounting
This thought-provoking and immensely readable collection of articles, speeches and
letters by Walter Schuetze, one of the world’s most distinguished accounting
practitioners, is a work for our time.
In the wake of the largest surprise corporate failures and retrospective financial
restatements in corporate history, Walter Schuetze and Peter Wolnizer (as editor) turn
their attention to what they call the syndrome of “Enronitis.”
They contend that the unheralded collapse of companies such as Enron and
WorldCom in the USA, and HIH Insurance in Australia, shows the failure of
conventional accounting and auditing practices to provide high-quality financial
information for investors as intended by law. It is little wonder, therefore, that
public confidence in financial reporting, auditing and corporate regulation is at an
all-time low.
This book argues that it is time to base financial reports on up-to-date prices —
current selling prices for assets and current settlement prices for liabilities— and to
disclose the details of those who provide the market price data.
In this strongly practical case for mark-to-market accounting, the authors
demonstrate how such a regime would put a stop to earnings management and
establish a firm financial foundation for corporate governance and independent
auditing. Providing nothing less than “true north” in financial reporting.
This book will be essential reading for advanced students and academics in the field
of accounting.
Walter P.Schuetze is a certified public accountant. He was chief accountant to the
Securities and Exchange Commission (1992–5) and chief accountant of the
commission’s Enforcement Division (1997–2000).
Peter W.Wolnizer is dean of the Faculty of Economics and Business and a
professor of accounting in the University of Sydney. He is author of Auditing as
Independent Authentication and has written extensively on financial accounting and
auditing.
Routledge New Works in Accounting History
Series editors: Richard Brief, Leonard N.Stern School of Business, New York
University; Garry Carnegie, Deakin University, Australia; John Richard Edwards,
Cardiff Business School, UK; Richard Macve, London School of Economics, UK
The Institute of Accounts
Stephen E.Loeb and Paul J.Miranti
Professionalism and Accounting Rules
Brian P.West
Accounting Theory
Essays by Carl Thomas Devine
Edited by Harvey Hendrickson and Paul Williams
Mark-to-market Accounting
“True north” in financial reporting
Walter P.Schuetze, edited by Peter W.Wolnizer
Mark-to-market Accounting
“True north” in financial reporting
Walter P.Schuetze,
edited by Peter W.Wolnizer
LONDON AND NEW YORK
First published 2004
by Routledge
11 New Fetter Lane, London EC4P 4EE
Simultaneously published in the USA and Canada
by Routledge
29 West 35th Street, New York, NY 10001
Routledge is an imprint of the Taylor & Francis Group
This edition published in the Taylor & Francis e-Library, 2005.
“To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of
thousands of eBooks please go to www.eBookstore.tandf.co.uk.”
© 2004 Walter P.Schuetze and Peter W.Wolnizer
All rights reserved. No part of this book may be reprinted or
reproduced or utilized in any form or by any electronic,
mechanical, or other means, now known or hereafter invented,
including photocopying and recording, or in any information
storage or retrieval system, without permission in writing
from the publishers.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the
British Library
Library of Congress Cataloging-in-Publication Data
A catalog record for this title has been requested
ISBN 0-203-63399-7 Master e-book ISBN
ISBN 0-203-63739-9 (Adobe eReader Format)
ISBN 0-415-29955-1 (Print Edition)
To our wives Jean and Gaye
Contents
Notes on author and editor ix
Foreword xi
Letter from Fred Talton xiii
Acknowledgments xiv
1 Walter P.Schuetze: accounting reformer 1
PETER W.WOLNIZER
2 Autobiography 20
WALTER P.SCHUETZE
PART I Accounting for assets and liabilities 32
3 Schuetze on accounting for assets and liabilities 33
PETER W.WOLNIZER
4 Keep it simple 46
5 What is an asset? 52
6 What are assets and liabilities? Where is true north? 59
(Accounting that my sister would understand)
7 New chief accountant’s wish list 85
8 Relevance and credibility in financial accounting and 90
reporting
9 Why are we all here anyway? 99
10 Accounting for restructurings 103
11 Enforcement issues, and is the cost of purchased goodwill an 110
asset?
12 Cookie jar reserves 115
13 Financial instruments 120
vii
14 Accounting for transfers of receivables (by Tom, Dick, and 124
Harry)
15 Discount rate re cash outflows for nuclear decommissioning 132
and environmental remediation
16 Discount rate for pension liabilities 135
17 Exposure Draft E55: Impairment of Assets 137
18 Exposure Draft E59: Provisions, Contingent Liabilities, and 139
Contingent Assets
19 Exposure Drafts E60: Intangible Assets, and E61: Business 142
Combinations
20 Business combinations and intangible assets 147
21 Accounting for the impairment or disposal of long-lived 154
assets and for obligations associated with disposal activities
22 Business combinations and intangible assets: accounting for 157
goodwill
23 The FASB and accounting for goodwill 161
24 Accounting for financial instruments with characteristics of 165
liabilities, equity, or both
25 Accounting for stock options issued to employees 168
26 Proposed interpretation: guarantor’s accounting and 174
disclosure requirements for guarantees, including indirect
guarantees of indebtedness of others
27 Your proposed interpretation: consolidation of certain 175
special-purpose entities
PART II The implications of accounting practices for auditing 178
28 Schuetze on the implications of accounting practices for 179
auditing
PETER W.WOLNIZER
29 Disclosure and the impairment question 189
30 The liability crisis in the USA and its impact on accounting 196
31 Reporting by independent auditors on internal controls 202
32 A mountain or a molehill? 209
viii
33 Comments on certain aspects of the special report by the 218
AICPA’s Public Oversight Board of 5 March 1993
34 Enforcement issues: good news, bad news, Brillo pads, 226
Miracle-Gro, and Roundup
PART III Accounting standard setting and regulation 234
35 Schuetze on accounting standard setting and regulation 235
PETER W.WOLNIZER
36 The setting of international accounting standards 247
37 What is the future of mutual recognition of financial 251
statements, and is comparability really necessary? Information
is king
38 A note about private-sector standard setting 256
39 Take me out to the ball game 260
40 Financial accounting and reporting in our worldwide 266
economy
41 SEC accounting update 274
42 A review of the FASB’s accomplishments since its inception 279
in 1973
43 Current developments at the SEC 284
44 A memo to national and international accounting and 291
auditing standard setters and securities regulators (a
Christmas pony)
45 Hearing: “Accounting and Investor Protection Issues Raised 303
by Enron and Other Public Companies: Oversight of the
Accounting Profession, Audit Quality and Independence,
and Formulation of Accounting Principles”
46 Watching a game of three-card monte on Times Square 310
47 IASC due process 320
Index 324
Notes on author and editor
Walter P.Schuetze was chief accountant to the Securities and Exchange Commission
(SEC) of the United States of America from January 1992 through March 1995,
when he retired. He was appointed chief accountant of the SEC’s Enforcement
Division in November 1997 and served through mid-February 2000, when he
retired again. He was a consultant to the Enforcement Division from March 2000
through March 2002 on matters involving accounting and auditing.
Mr Schuetze is currently a consultant in various litigations as an expert in
accounting and auditing. He is also an executive in residence in the College of
Business at the University of Texas in San Antonio and a member of the boards of
directors and chairman of the audit committees of Computer Associates
International Inc. and TransMontaigne Inc.
He was a charter member of the Financial Accounting Standards Board, serving as
a member from April 1973 through mid-1976. He was a member then chairman of
the Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants. He was a member of the Steering Committee of the
International Accounting Standards Committee dealing with intangible assets,
business combinations, and impairment of assets. He has delivered occasional
lectures on accounting at the business schools of St Mary’s University in San
Antonio, the University of Texas in San Antonio and the University of Southern
California in Los Angeles.
Walter Schuetze began his career in accounting in 1957 with the public
accounting firm of Eaton & Huddle in San Antonio, which merged with Peat,
Marwick, Mitchell & Co. (now KPMG LLP) in 1958. He was a partner in KPMG
from 1965 to 1973, when he was appointed to the Financial Accounting Standards
Board, and from 1976 to 1992, when he was appointed to the position of chief
accountant to the Securities and Exchange Commission.
He served in the US Air Force from 1951 to 1955. He received a Bachelor of
Business Administration degree, with honors, from the University of Texas at