Balancing Act

What do Enron and all of the companies currently taking huge write-offs in the sub-prime mortgage fiasco have in common? They all kept non-performing assets hidden off of their balance sheets. And what has the FASB (Financial Accounting Standards Board) done to remedy this fundamental flaw in accounting standards? Nothing … I repeat, nothing. Congress has held hundreds of days of hearings pontificating on these issues. Other than that notoriously poor piece of legislation called Sarbanes-Oxley, nothing has changed. Op Ed writers have written furlongs of column inches of suggestions on what to do to stop such fraud. And still nothing has changed. This practice of financial legerdemain continues, each year finding newer and cleverer ways to obscure the true financial health of corporations. (After all, balance sheets were created to indicate the well being of a company at a point in time.)

I have a suggestion … not mentioned anywhere in the Congressional hearings, in the Op-Eds, or at the FASB. Congress and the FASB should decree that the holding of any assets or liabilities off of the balance of a publicly-held corporation is verboten. Simple as that. All reserves, all contingency accounts, all the assets and liabilities of a corporation’s subsidiaries (or those created in non-arm’s-length transactions), anything and everything that relates to the financial health of a company should be disclosed on its balance sheet … not in an obscure footnote, not in the accompanying text, not anywhere else by implication … but ON THE BALANCE SHEET. Simple as that.