Hidden Financial Risk: Understanding Off-Balance Sheet Accounting / Edition 1

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Overview

The parade of catastrophic accounting scandals, chief among themthe Enron debacle, has intrigued business and the general public asfew corporate scandals ever have. The extraordinary number ofpeople materially affected by these episodes, coupled with theirresistible spectacle of base human greed run wild, guaranteesthat public attention will not soon recede. Everyone agrees that"mistakes were made." There are two very different responses,however, on what to do about it. Are there simply a few bad appleswhose just punishment will bring the financial stars back intoalignment? Or are the scandals the product of profound systemicfailures, the remedy for which can only be revolutionary reform'Accounting professor and renowned authority, Edward Ketz,emphatically proclaims the latter and offers a comprehensiveanalysis of how firms bury risk, why nobody stops them, and what todo about it in Hidden Financial Risk: Understanding Off-BalanceSheet Accounting.

In Hidden Financial Risk, Ketz thoroughly and accessiblyexplains the dubious methods by which firms hide debt and thefailings by managers, directors, auditors, regulators, andinvestors who allowed these methods to poison financial reporting.Ketz places particular emphasis on understanding Special PurposeEntities (SPEs), Enron’s preferred method of deception. Amongother services, this compelling analysis:

  • Identifies the incentives for managers to deceive investors andcreditors about the firm’s financial risk
  • Illustrates the equity method, lease accounting, and pensionaccounting, popular methods of Off-Balance Sheet accounting, andexplains how investors can deconstruct them
  • Examines the failure of boards of directors, accountants, theFASB, and the SEC to minimize accounting failures
  • Discusses what must be done to reduce the number of corporatemanagers who lie in financial reports
  • Shows what individual investors must do to protect theirinvestments in a world filled with accounting and auditingfraud
  • Explains how the Sarbanes-Oxley bill will affect financialreporting

Ketz concludes with an illuminating look at Arthur Andersen who,while one of the biggest losers in the accounting scandals, maynevertheless hold the key to the industry’s resuscitation.Financial reporting is in critical condition. Edward Ketz suppliesa compelling diagnosis, prescription, and vision of its road torecovery in Hidden Financial Risk.

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Editorial Reviews

From the Publisher
"Ketz' discussion is fascinating, although all too useful to futurescamsters wanting to find out just how those clever guys at Enrondid it." (UPI Business and Economics, August 11, 2003)
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Product Details

  • ISBN-13: 9780471433767
  • Publisher: Wiley
  • Publication date: 7/16/2003
  • Edition number: 1
  • Pages: 298
  • Sales rank: 1,478,099
  • Product dimensions: 10.00 (w) x 7.00 (h) x 0.75 (d)

Meet the Author

J. EDWARD KETZ, PhD, is MBA Faculty Director and AssociateProfessor of accounting at Penn State’s Smeal College ofBusiness. He has been cited in the press over 500 times sinceEnron’s bankruptcy, and is well known as an accounting expertas attested in writings, vast citations in the press and ontelevision, including the New York Times, the Wall Street Journal,and the Washington Post. His column "Accounting Annotations" ispublished in Accounting Today and his column "Accounting Cycle:Wash, Rinse, and Spin" appears regularly at SmartPros.com. He isalso the author of Bridge Accounting: Procedures, Systems, andControls (Wiley).

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Table of Contents

Preface.

PART I. MY INVESTMENTS WENT OUCH!

1. What? Another Accounting Scandal?

2. Balance Sheet Woes.

PART II. HIDING FINANCIAL RISK.

3. How to Hide Debt with the Equity Method.

4. How to Hide Debt with Lease Accounting.

5. How to Hide Debt with Pension Accounting.

6. How to Hide Debt with Special Purpose Entities.

PART III. FAILURES THAT LED TO DECEPTIONS.

7. The Failure of Managers and Directors.

8. The Failure of the Auditing Profession.

9. The Failure of Regulation.

10. The Failure of Investors.

PART IV. MAKING FINANCIAL REPORTS CREDIBLE.

Chapter 11. Andersen Has the Solution—Really!

Bibliography.

Index.

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  • Anonymous

    Posted August 3, 2003

    Prevents Financial Risk

    A book that every Enron investor wishes they owned four years ago, and a book that all investors should own. Offers the insights investors need to prevent getting duped by accounting and auditing firms that appear to support how managers hide bad debt and inflate stock offerings. This might be the first book that gives average investors the tools to make sense of balance sheets and annual reports. It became clear that--thanks to questionable accounting methods--many companies were able to inflate their earnings. Ketz's book blows the lid off of these tools of deception. I loved reading attacks by Penn State alumni working for Andersen that are profiled in the foreward. It just highlights the basic problem in the industry. Accounting firms propping up bad companies and take good money from average investors.

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