Rethinking accounting after the Enron debacle
Boston Globe
By D.C. Denison, 2/3/2002
Professor Jay Thibodeau was at the blackboard one
afternoon last week, energetically charting basic
accounting principles for students in his ''Fundamentals of
Auditing'' course at Bentley College in Waltham.
Early in the class,
Thibodeau mapped
two groups on the
board: ''upper
management'' and
''investors,
creditors.'' He left a
large expanse of
gray between them.
''This is where
accountancy comes
into play,'' he said,
pointing to the
empty space
between the two groups. ''Can the investors and creditors trust
the numbers they are getting from upper management?''
Hey professor, a lot of people are asking that same question
these days. The sudden collapse of the nation's seventh-largest
company will naturally start people wondering about standards
in corporate finance, conflicts of interest, and the role of
''accountancy.''
But at Bentley, which has trained generations of accountants
(it was founded in 1917 as the Bentley College of Accounting
and Finance), the questions are much bigger, much broader.
Like whether the current business reporting model is just
plain broken.
Thibodeau thinks that it is.
''The accounting model we're working with now was developed
for the industrial age,'' he told the class that afternoon. ''It
worked for companies like U.S. Steel. It doesn't necessarily
work for Enron.''
Specifically, Thibodeau says the current accounting model
lacks standardized measures for many of the nonfinancial
metrics that are commonly used in many information-age
companies. And although Enron's business was energy, many
of its accounting practices were borrowed from ''new economy''
companies.
During the class, Thibodeau brought up the example of AOL.
''The number of customers, the number of new customers, the
number of page views - those metrics are very important in the
Internet sector,'' he said.
''Why not have a standardized measurement display of these
nonfinancial performance measures?'' he asked as he paced in
front of the class. ''These things can be measured, and
audited.''
Thibodeau, in fact, is currently working on a research project
with three colleagues that is studying the information used by
sell-side financial analysts in making their buy-sell stock
recommendations. Thibodeau says that they've already
discovered that analysts appear to use ''massive'' amounts of
information that is not independently audited.
In some respects, Thibodeau's work is part of a larger
movement that is attempting to expand the purview of
accounting. Bentley's accountancy department, for example,
now offers popular combo degrees in ''accounting and finance''
and ''accounting and computer science'' - to train students to
better capture the new realities of business.
And the entire accounting profession is still debating a broad
study sponsored by the Financial Accounting Standards Board
that urges an expansion of the standard financial model to
include data and performance measurements that are not
captured by traditional annual reports.
Up to now, many businesses have fiercely, and successfully,
resisted expanded reports. Thibodeau goaded the class to
consider some reasons why: additional costs; fear of
compromising competitive secrets; more data for litigious
investors.
But it didn't take much coaxing to determine why lobbyists for
those objections may be losing their power.
A student in the third row raised her hand and said just one
word: ''Enron.''
''As accountants, we measure. That's what we do,'' Thibodeau
told his class that afternoon.
Thanks to the Enron/Andersen debacle, Thibodeau and his
students may soon be getting more data to measure.
D.C. Denison can be reached by e-mail at denison@globe.com.
This story ran on page E2 of the Boston Globe on 2/3/2002.
© Copyright 2002 Globe Newspaper Company.
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