RE: precautionary principle

["Davies, Daniel" <daniel.davies@xxxxxxxxxxxx>]

>The Enron and dot.con melt-downs suggest that a similar principle should be
>applied to accounting (in the face of new corporate forms that stretch
>traditional accounting norms).

>But can capitalism -- which centers on the aggressive accumulate-to-compete
>or compete-to-accumulate principle -- ever follow any precautionary
>principle without strict governmental restrictions?

I think what you may be talking about is the "true and fair view" issue,
which appears in UK but not US accounting.  Under the Companies Acts of the
UK, all accounting standards are subject to the caveat that accountants have
a duty to override the standards if it is necessary to do so to give a "true
and fair view" of the company's financial standing.  US accounting standards
are meant to be drafted tightly and followed to the letter.  Which is why
the US has about (literally) ten times as many accounting standards as the
UK, which are much more rigorously drafted (UK FAS's are typically more like
general statements of principles, backed up by a few technical notes).  It's
both the strength and the weakness of US accounting; the tightness of the
standards mean that the average quality of US accounts is probably higher,
but they are more vulnerable to aggressive accounting a la ENE.

dd


___________________________________________________
Email Disclaimer

This communication is for the attention of the
named recipient only and should not be passed
on to any other person. Information relating to
any company or security, is for information
purposes only and should not be interpreted as
a solicitation or offer to buy or sell any security.
The information on which this communication is based
has been obtained from sources we believe to be reliable,
but we do not guarantee its accuracy or completeness.
All expressions of opinion are subject to change
without notice.  All e-mail messages, and associated attachments,
are subject to interception and monitoring for lawful business purposes.
___________________________________________________