Hidden Financial Risk phần 1 doc

[...]... and a culture that fostered “aggressive accounting.” DEBT? WHAT DEBT? Financial Leverage The theory of finance posits that expected returns are a function of risk Risk itself is comprised of many different aspects, including business risk, inflation risk, political risk, and financial risk Here I am concerned primarily with financial risk, which deals with the negative aspects of having too much debt... Astrocom Corporation 12 Caribbean Cigar Company 13 Carrington Laboratories, Incorporated 14 Centennial Technologies Incorporated 15 Computron Software, Incorporated 16 Concorde Career Colleges, Incorporated 17 Craig Consumer Electronics Incorporated 18 Discount Auto Parts Incorporated 19 Donnkenny, Incorporated 20 Dyna Group International Incorporated 21 Electrosource, Incorporated 22 Eltek Limited... Incorporated 1 Acacia Research Corporation 2 Alabama National BanCorp 3 America Online, Incorporated 4 American Business Information, Incorporated 5 American Standard Companies Incorporated 6 AMNEX, Incorporated 7 Ancor Communications, Incorporated 8 Arrhythmia Research Technology, Incorporated 9 Arzan International (19 91) Limited 10 Ascent Entertainment Group, Incorporated 11 Astrocom Corporation 12 Caribbean... found in the GAO’s 2002 report Financial Statement Restatements .10 The GAO found that from 19 97 until June 2002, there were 919 accounting restatements The GAO’s list is presented in Exhibit 1. 2 Firms certainly make mistakes from time to time, but 919 changes is a ridiculously high number, and it makes me wonder whether any manager tells the truth At the least, I believe that 919 restatements of the accounting... concrete, financial economists talk about financial leverage, which attempts to measure either the amount of debt in the financial structure or the amount of fixed interest charges in relation to the overall cost structure Since the latter is difficult for analysts to glean from public financial statements, here I shall operationalize financial leverage as some ratio of debt that occurs in the financial. .. balance sheet Enron corrected this irregularity in a public statement on October 16 , 20 01 This shrinkage of the assets by $1. 2 billion not only reflects decreased asset values but also implies that the debt-toequity ratio was systematically underreported In other words, this manipulation deceived investors about the true financial risk of the enterprise The net effect of these five schemes is that Enron greatly... worked for him Dunlop fired many employees to cut costs and restructured much of Sunbeam’s businesses during the 7 MY INVESTMENTS WENT OUCH! mid 19 90s He apparently also managed the books to give the firm a healthy set of financial figures in 19 96, 19 97, and 19 98 The legerdemain here was that old chestnut of recognizing revenues whether the firm did anything to earn them or not Specifically, Sunbeam... the many accounting and auditing failures in corporate America, I focus on financial risk As clarified later in this chapter and in the next, financial risk concerns the bad stuff that can happen to a company when it takes on too much debt Investors and creditors recognize this concept, so they monitor how much debt exists in the financial structure of a corporation But managers realize that investors... American society ACCOUNTING PROPHETS: “THEY HAVE NO PROFITS 1 Some writers have criticized corporate accounting, but until recently they have been few in number Perhaps the best-known accounting critic is Abraham Briloff, who wrote Unaccountable Accounting (19 72), More Debits Than Credits (19 76), and The Truth About Corporate Accounting (19 81) .2 These books have two themes First, accounting distortions,... some identifiable, circumscribed issue of financial accounting This book allows me to address these concerns in a broader and more coherent fashion I see three purposes of this book: (1) to lay out in some detail several specific problems xi PREFACE in the financial reporting arena, (2) to describe how the system failed to correct any of these problems during 20 01 and 2002, and (3) to suggest a course . Leases 91 Summary and Conclusion 10 1 Notes 10 1 5 How to Hide Debt with Pension Accounting 10 3 Definitions and Concepts Underlying Pension Plans 10 5 Brief Overview of Pension Accounting 11 1 Adjusting. 15 1 Failure of Managers 15 2 Failure of Directors 15 5 Business Ethics: As Oxymoronic as Corporate Governance? 16 1 Culture 16 4 Summary and Conclusion 16 7 Notes 16 8 CONTENTS viii 00 Ketz FM 5/ 21/ 03. Liabilities 11 7 Summary and Conclusion 12 2 Notes 12 3 6 How to Hide Debt with Special-Purpose Entities 12 5 Special-Purpose Entity Landscape 12 6 Securitizations 13 1 Synthetic Leases 13 7 Accounting