دعوت از همه طرف ها: اکنون زمان آمدن به کمک ترازنامه است

Recently, accountants were instructed by President Bush to get their acts together. Indeed, the Enron, WorldCom, Tyco, and other recent corporate financial reporting failures have prompted a loss of faith in accountants and accounting. To a large extent, this loss of faith involves corporate balance sheets and it is warranted. Corporate managers and shareholders have a vested interest in addressing balance sheet shortcomings. This article highlights the pervasive shortcomings of contemporary corporate balance sheets, identifies the underlying foundational tensions creating those shortcomings, offers proposals to address those tensions, and discusses the potential implications of our proposals.

In the wake of the startling revelations regarding the financial reporting fiascos at Enron, Tyco, WorldCom, Adelphia, Qwest, Xerox, HealthSouth, and others, consider the violence (we use Sartre's word) done to the faith of the investing public regarding contemporary financial reporting. In part, that faith-shattering violence is due to the overnight collapse of these seemingly healthy, promising companies. Investors large and small saw their rainy-day, college, and/or retirement savings devastated. Dreams of financial security quickly turned into nightmares of information voids and investment helplessness. Main Street wondered how such failures could come to pass when the financial statements did not indicate anything was amiss. Indeed, Wall Street had to admit that, “the financial reporting system is completely broken” (Henry, 2004, p. 80). In response to these headline-grabbing financial statement failures, the U.S. Congress passed the Sarbanes–Oxley Act of 2002 (SOX), which is, in the minds of many, the most significant change in corporate financial reporting laws since the Securities Acts of 1933 and 1934. Among other things, SOX created a new regulatory body (the Public Company Accounting Oversight Board), established new reporting responsibilities for corporate chief executive officers (CEOs) and chief financial officers (CFOs), delineated new responsibilities for corporate audit committees and boards of directors, and increased the criminal penalties for those who participate in financial statement misrepresentations. Public outrage and congressional attention to the scandals have galvanized intensive reflection at the Financial Accounting Standards Board (FASB) and have heightened concerns at the Securities and Exchange Commission (SEC). Few would disagree that the efficacy of financial reporting is at stake. Much of the news coverage pertaining to the recent financial reporting failures has focused on income statements and their misstatements of revenues and earnings. For example, WorldCom's eventual correction of its infamous earnings misstatements essentially reversed all the earnings it had reported during its fraud years. Due, in part, to such publicity, regulators have enacted some income statement-related reforms. It would be a great shame, however, if the drive for financial reporting reform stopped with the income statement. The creditability and usefulness of balance sheets is also at stake. It has been known for some time that “analysts often perceive balance sheets as irrelevant” (Epstein & Palepu, 1999, p. 50). The Wall Street Journal has even reported that “investors [are] on edge about corporate balance sheets” ( Zuckerman & Benson, 2002, p. C1) and, yet, balance sheets matter a great deal. In another Wall Street Journal article, it was reported that “debt levels [a key measure to be reported in balance sheets] are among the most important measures of a company's financial health” ( Weil, 2004, p. A1). Consider also that just before its demise, Enron and its accountants disclosed a US$1 billion balance sheet overstatement of assets and equity. Earlier, however, Enron management had chosen not to mention that fact in a meeting with analysts because “the matter was [just] ‘a balance sheet issue’ and did not need to be included in the…discussion” ( Emshwiller & Smith, 2001, p. A10). It was the eventual disclosure of that reduction in assets and equity, however, that caused rating agencies to downgrade Enron's credit, a key spark igniting the company's subsequent, rapid demise. The ‘it-was-just-a-balance-sheet-issue’ mentality was a major miscalculation. In general, contemporary balance sheets suffer from the dual sins of omission and commission; i.e., not all important items are presented, and the amounts for those items that are reported are not all that helpful. If balance sheet shortcomings were due only to what Sartre calls the “incommunicables” (i.e., the information for which we have no ability to measure or describe), balance sheet preparers and the companies they represent might be able to dismiss the current crisis of faith with the justification that they did their best, despite any flawed outcomes. However, we believe the root cause of balance sheet shortcomings has more to do with “uncommunicateds” (i.e., the information which could be reported but is not) than “incommunicables.” This is not a problem that should be left for accountants to address; specifically, corporate managers need to be concerned. As noted earlier, SOX requires CEOs and CFOs to sign explicit representations that they have read their company's SEC financial statement filing (which covers the company's balance sheet) and that they believe their company's financial results are fairly presented. No CEO or CFO will sign such a representation until he or she has received an equivalent representation from their company's operating people. In some companies, this has resulted in a cascaded set of signed representations from a couple hundred other managers. Thus, every manager with significant responsibilities within his or her company must be mindful of the shortcomings, and the possibilities for improvement, in balance sheets. “You may fool all the people some of the time. You can even fool some of the people all of the time. But you can't fool all of the people all the time.”—Abraham Lincoln (16th President of the United States) There is no reason why balance sheets should confuse some of the people all of the time and all of the people some of the time. By its own proclamation, the financial reporting profession has said that the litmus test for the efficacy of financial statements is that they be understandable to the reasonably prudent reader and helpful in making decisions regarding the company to which they pertain. Even a casual reading of the business press during the past several years would suggest that, in regard to these twin tests (decision usefulness and understandability), balance sheets and their related explanatory footnotes have failed (e.g., Stock, 2003). Over the past several years, a few positive changes have been made to balance sheets (e.g., the elimination of the pooling method for reporting the consolidation of subsidiaries), and certain accompanying footnotes are more extensive (e.g., financial instruments). The balance sheet shortcomings highlighted in this paper, however, constitute an aggressive agenda for further change; change not only at a specific rule level but, more importantly, at a fundamental, foundational level assumed by some to be sacrosanct. Thankfully, unlike mathematical theorems or the laws of physics, financial reporting conventions are socially constructed, improved through debate, and owe their existence to the pervasiveness of their acceptance by business people. It is our intent to spark debate and to influence the reconstruction of several fundamental balance sheet underpinnings. Balance sheet conventions can be changed, should be changed, and managers have a stake in the direction and outcome of that change. The SEC (2003) has invited a comprehensive re-thinking of financial reporting. Thus, we ought not let the current window of opportunity for balance sheet reform slip away nor let any affected constituency sit on the sidelines. Based on over 70 combined years of academic, professional, and enforcement work experience in the financial reporting arena, and based on our interactions with hundreds of corporate managers dealing with financial reporting questions/concerns during that time, we highlight seven fundamental shortcomings of contemporary balance sheets and propose some related remedies. We agree with Schon (1983), who notes in his classic The Reflective Practitioner, that in the face of “increasing signs of a crisis of confidence in the professions, [and in response to] encountering visible failures of professional action,” there is value in reflecting on the implicit norms and conventions that underlie practice (p. 4). Although Schon focused on the world of architects, engineers, and managers, we believe he accurately presaged the current world of financial reporting practitioners and that his call is exactly right. At the outset, it is worth noting that our proposals do not shy away from calling for more, rather than less, management judgment in crafting balance sheets. If nothing else, the now infamous Enron disaster highlights the negative consequences of an excessive reliance on meeting the fine-print details of specific balance sheet rules, and abuses of good judgment. Indeed, substituting more rules to avoid more judgment creates additional cover for the deceptions of those who want to hoodwink financial statement readers. In our proposals, we anticipate several things. First, we anticipate a reluctance to relinquish old balance sheet methods for new ones; thus, some of our proposals involve the corporate presentation of dual sets of data (both old and new), or reconciliations (of new to old). It is our belief that, over time, the usefulness of the new data will eventually extinguish the demand for the old data. Second, there is some truth to the adage that “the devil is in the details” for a few of our proposals. We believe, however, that the first proposal we discuss preempts, to a large extent, the “devil.” Third, and just as John C. Burton, former chief accountant of the SEC, noted over a decade ago: “When faced with accounting changes, people always say, ‘Blood will run in the streets!’” (McGough, 1992, p. 16). In reality, there was no blood then, and we believe there will be none now as interested stakeholders generally agree that the status quo is not acceptable and change is needed. Such hyperbole does, however, underscore the tenacity with which some constituencies may fight change. This is to be expected, given the strong connection between companies' financial reports and readers' renderings of an evaluation of corporate management performance. In the face of such fights, supporters of balance sheet change must not lose their resolve. In sum, this article is primarily for non-accountants, and its purposes are to: • highlight seven pervasive, contemporary balance sheet shortcomings; • identify the foundational underpinnings of those shortcomings; • propose changes at the foundational level; and • to enlist managers in the debate on balance sheet reform. In general, our proposals will result in a need for managers to recalibrate financial performance as the amounts carried in many balance sheet categories would increase. Managers will also need to engage in and become adept at a broadened array of financial communications because of the wider balance sheet-related net cast by our proposals. We invite corporate managers to understand the shortcomings presented, to contemplate the possibilities for change posited, to participate in the debate, and to be proactive voices in addressing the public's loss of faith in contemporary corporate balance sheets.