Martin Crutsinger, writing for AP, has exposed the real accounting scandal.

All of the politicians cook the books in far worse ways than Corporate America. It seems that things are a little too close to home.

My main concern with the corporate witch hunts is that they have become just that. The arm chair quarterbacking of these scandals is that this stuff is all easy. Certainly - in these cases the leaders were doing something fraudulent and they deserve to be punished, but in the heat of the moment I don't hear many people standing up for how hard the interaction of auditors and company, company and shareholders is.

I recently read a very good post regarding the new requirement that CEOs and CFOs personally certify filings. Robert Musil outlines how the current proposal is at best meaningless and at worst would further disincent timely and factual disclosure. (Thanks to Overlawyered.com and this post!)

My main concerns with the current over-reactions center around board quality and auditor interaction. To the first point, recruiting and retaining high quality board members is darn near impossible when the subtext of most all of the regulator's current comments is that they wish to make it much easier to make board members individually liable. That coupled with NASD's new rule that limits outside board members to $60K in cash compensation starts to force the question of why a successful business person would choose to be on a public company board. Being a board member, I am starting to ask myself that question.

To the relationship with the Auditors, I offer up the real life case of EMusic.com. When we licensed music by paying advances we wanted to follow the long held music industry practice of immediately expensing the advance unless the music rights were clearly able to commercially perform. In the music business, all artist advances that are not to the likes of REM in mid career are expensed as the vast majority of artists never recoup those advances (whether that is actually true however is the subject of many other blog rants, but I digress.)

PwC didn't want to let us take that treatment as they felt that it was too similar to in process R&D write downs that were then the focus of the SEC. The final outcome is that we went a couple years with this bogus asset of music advances on our balance sheet which was finally written down after the massive internet equity declines. The funniest part was that our CFO's collegiate accounting professor called and pointed this out saying that our statements were not GAAP. Analysis paralysis is going to be the lasting legacy of the Arthur Anderson's demise.

Finally, take a look at a serious commentary from Scott Adams of Dilbert fame.

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