RE: RE: precautionary principle

["Devine, James" <jdevine@xxxxxxx>]

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

Daniel Davies writes: > 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.<

I don't know very much about accounting, but what I was thinking of is as
follows: there's a big issue of how "one time charges" are counted in
reporting earnings. Are they discounted (minimized) the way Enron did and
other high-flyers do? or are they simply subtracted from current earnings? A
"precautionary principle" would say that when in doubt, they'd be subtracted
from current earnings.

It seems to me that if the financial investors were smart, they'd realize
that the one-time charges are exactly that and care about a company's
earnings over a longer time horizon.

Jim Devine