Think Inc.
A forum for Hawaii's
business community to discuss
current events and issues.
Think Inc.
A forum for Hawaii's
business community to discuss
current events and issues.
[ EXPLAINING THE ECONOMY ]
Knowledge of accounting,
not government regulation,
will protect investors'In our free society, any person who owned
Enron stock, either directly or indirectly as
part of funds, or who managed investments in
Enron, should have read Enron's annual reports'
By Jack Karbens Investors are hoping to avoid future losses such as the decline in value of Enron Corp. shares. Many are hoping government actions will eliminate such failures from ever happening again.Some are hoping to recover losses from wherever possible. Others count their losses from the top stock price ever attained down to zero value.
 |
Our private enterprise system depends on informed investors.Similarly, freedom depends on informed citizens. A famous economist, Milton Friedman, wrote a book, "Free to Choose," which expressed clearly that each citizen should have the right to choose and consequently win or lose.
The announcements of new corporate shares to be issued warn that any investor should be prepared to lose up to one hundred percent of amounts invested. Let the buyer beware!
The foundation for becoming an informed investor is a sound knowledge of accounting. Accounting is the language of business and government.
Unfortunately, less than one of every 100 citizens ever has the opportunity to take a course in accounting. Tragically, most people who study accounting do not master the basic concepts for a multitude of reasons.
During current Enron hearings conducted by U.S. Senate and House committees, ignorance of accounting has prevailed.
Legislators disclaimed knowledge of accounting, chief executive officers pled ignorance of reporting issues related to transactions conducted by subordinates, managers of pension plans claimed to have been misled and the dean of the University of Texas Law School prepared a report blaming primarily Enron's accountants and CPAs.
On the other hand, Dean William Powers told Sen. Daniel Inouye his study did not determine the knowledge Enron's lawyers had about questioned accounting and tax issues. Stock market analysts were accused of advising investors to buy stocks almost all the time regardless of information available in audited accounting statements or other sources.
Investors may not have the time, talent or money to master accounting.
However, investors are responsible for either learning accounting or ensuring those in positions of power do know accounting.
Before making investments, feel free to ask your attorney, pension plan manager, broker, politician, boss, banker, potential employer or others, "Please tell me about your knowledge of accounting."
If they plead ignorance of accounting, claim they hate it, roll their eyes or apologize that they have forgotten whatever they once learned about accounting, remember, you are free to choose to invest your money elsewhere.
In our free society, any person who owned Enron stock, either directly or indirectly as part of funds, or who managed investments in Enron, should have read Enron's annual reports audited by CPAs, including the footnotes on special purpose entities; Enron reports filed with the SEC and evaluations of Enron made by investor services such as Value Line.
The material facts were available for any informed, objective investor to consume before buying or selling Enron shares.
Large, complicated corporate activities such as those found at Enron are created by administrators, based on advice from lawyers.
CPAs and accountants observe, comment upon and attempt to present fairly the results of these transactions according to existing standards and laws.
No amount of government regulation can eliminate risks taken by investors in shares of private corporations.
If administrators, attorneys, CPAs, brokers or other individuals are determined to be guilty of crimes in a court of law, they will hopefully be given their just reward. Illegal behavior by individuals working for companies or government cannot be eliminated by legislation.
Protect yourself! Learn your accounting well.
Be able to make your own observations of financial activities of private, public and nonprofit organizations with which you choose to associate. Hopefully you will select winners most of the time.
The Lord helps those who help themselves. As Braveheart said, "Freeeedom!"
Jack Karbens is an associate professor of accounting and finance at Hawaii Pacific University. He can be reached at jkarbens@hpu.edu.
To participate in the Think Inc. discussion, e-mail your comments to business@starbulletin.com; fax them to 529-4750; or mail them to Think Inc., Honolulu Star-Bulletin, 7 Waterfront Plaza, Suite 210, 500 Ala Moana, Honolulu, Hawaii 96813. Anonymous submissions will be discarded.