Friday, March 6, 2009

Blame to spread in the Financial crisis

Seems like everyone is looking for someone to blame for the financial meltdown. I've started to think critically of my own profession and wondered did accountants miss the call? Is there something else that accountants could have done to reign in the leverage and exaggeratedly positive pricing models? Hard to find much supporting my suspicion, so I guess I'm on my own. What I do know is the as accountants we typically spend so much time focusing on minute details of accounting standards, I blame this on the last accounting crisis (post-Andersen and Enron and in the time of Sarbanes-Oxley), which focused accountants attention of very specific controls in the financial reporting process. However, the true risk that was missed was the larger (step-back) view and using a more holistic approach to assessing the overall business strategy of companies. In this the accountants may have dropped the ball again and the only thing people care about is mark-to-market!

So here's the end game...the accountants need to focus an equal amount of attention to being a trusted business advisor as to being a strict arbiter of the accounting rules.

Some accompanying reading...on economists missing the call and some mark-to-market reading.

1 comment:

  1. I've been thinking about this as well with my own profession. Lawyers had their fare share of the blame in the Enron debacle (Vincent & Elkins,,2933,197876,00.html). However, I believe that lawyers- who are for the most part bad business people- will have a good chunk of the blame in this financial meltdown.

    You can take your analysis of accountants and apply it directly to lawyers. Lawyers reviewed mortgage products, securities contracts, etc. for legality on the micro-level but did not [to my knowledge] consider the macro-effect of their actions.

    Back to work...