Last month an accountant, aged 96, died in New York. Maybe you’ve probably never heard of him. His name was Abraham Briloff. He was decent and honest and he was not greedy. He argued against something called creative and earnings management.
Wikipedia describes creative accounting and earnings management as “euphemisms referring to accounting practices that may follow the letter of the rules of standard accounting practices, but certainly deviate from the spirit of those rules.”
I go along with that description. It’s generally understood to mean the systematic misrepresentation of the true income and assets of companies and is at the root of a number of accounting scandals that have rocked the financial world over many years.
One commonly accepted incentive for the systemic over-reporting of corporate income, and which came to light 12 years ago, was the granting of stock options as part of executive pay packages. Because the price of stocks reflect what’s said in corporate reports, stock options could be most profitably exercised when earnings are artificially exaggerated, and the stock can be sold at an inflated profit.
But some accountants changed this world of deceit. The most notable of these was Abraham Briloff who for years wrote about breaches of ethics and audit professionalism among accounting firms in the United States.
Briloff was unafraid to say what he thought. He knew right from wrong. As an accountant and accounting professor, he was outraged by the manipulative games some accountants play. His trenchant and sometimes scathing analyses of corporate financial records often sent investors scurrying to dump their stocks. The articles he wrote turned him into a celebrity, revered by investors and vilified but also respected by companies and their accounting firms.
Briloff wrote several books but the most admired is “Unaccountable Accounting” in which he debunked many accounting myths, and pointed out the shortcomings of corporate financial reporting and fragility of GAAP in the hands of accounting marauders. In this, his second book, he describes the ineptitude and conspiratorial nature of auditing firms and asked why academics abandoned accounting for financial economics.
It’s worth reading about Briloff if you can get hold of his book. One useful source about him, here, is an article describing him as “An Accounting Hero for the Ages”. Yet it’s remarkable and almost unbelievable that this accounting hero was legally blind and relied on graduate students and his daughter Leonore to read financial statements to him.
There ought to be more accountants like Briloff and then the financial world of deceit would be changed for the better as scandal and greed is exchanged for integrity and honesty.