[tw]

Warren Buffet talks honest:

If stock options aren't a form of compensation, what are they? If compensation isn't an expense, then what is it? And if expenses shouldn't go into the calculation of earnings, where in the world do they go?

Buffet was talking honestly. So was Dick Cheney before we discovered the books in Haliburton had been cooked. In discussing his firm's accountants - Arthur Andersen:

One of the things I like that they do for us is that ... I get good advice ... over and above the normal by-the-books audit arrangements.

America may have rediscovered the purpose of accounting that the FASB seems to have forgotten - The Economist of 2 May 2002:

The primary purpose of financial statements is to show the underlying economic performance of a company. The balance sheet provides a snapshot, at a moment in time, of the assets, liabilities and capital of the business; and the income statement, or profit-and-loss account, shows the difference between total revenues and total expenses. The auditors vouchsafe that these present a fair view, acknowledging the subjective nature of some of the measures behind the accounts. The independence of the auditors guarantees, in theory, that “fair” is just that.
Somewhere along the line, though, things seem to have gone wrong. “Our financial reporting model is broken,” said Joseph Berardino, former head of Andersen, Enron's auditor, last year. Designed in the 1930s for an industrial age, financial statements, he argued, look backwards to historic costs; they give investors little clue about the future. Companies cannot include internally-produced software, drugs or brands in their balance sheets because they are intangible assets. That has led to an increasing gap between the value of companies as measured by the stockmarket and the value measured by their account ...