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

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Overview

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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Editorial Reviews

From the Publisher
"Ketz' discussion is fascinating, although all too useful to future scamsters wanting to find out just how those clever guys at Enron did 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
  • 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 Associate Professor of accounting at Penn State’s Smeal College of Business. He has been cited in the press over 500 times since Enron’s bankruptcy, and is well known as an accounting expert as attested in writings, vast citations in the press and on television, including the New York Times, the Wall Street Journal, and the Washington Post. His column "Accounting Annotations" is published in Accounting Today and his column "Accounting Cycle: Wash, Rinse, and Spin" appears regularly at SmartPros.com. He is also the author of Bridge Accounting: Procedures, Systems, and Controls (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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Sort by: Showing 1 Customer Reviews
  • 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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