Accounting for Profit

The Economic Crisis has become a crisis of trust between people, business, banks and government - and now you can add accountants into the mix.

Recent changes to the way the global body on accounting, the IASB, keeps books, will soon show a global recovery that is non-existent. Last October, the IASB, changed the rules to enable companies more leeway in disclosing assets and liabilities to favour the balance sheet. Deutsche Bank, for example, shifted $32b off their balance sheets. This enabled them to post a profit of $120m istead of a loss of $970m. When the profit was announced shares in the bank's stock soared 19%.

The accounting changes were made because of pressure from the EU. The IASB was formed to standardize accounting practices globally so investors and auditors could compare apples with apples. 130 countries have agreed to the new international standards - the major holdout to date is the US.

In the US, accounting standards are maintained by the Financial Accounting Standards Board. The FASB standards are considered more conservative and transparent than those elsewhere in the world, because of the larger number of lawsuits in the US. But pressure is being brought to bear on the US to change their standards. The SEC has ordered all companies to adopt the new standards by 2016, but 100 selected American companies can use the standards in 2009.

If Deutsche Bank's experience with the change is any indication, US banks will report startling turnarounds in Fiscal 2010. If just one of the major banks, probably Citigroup, accepts the new standard and reports a profit, then the other banks will be forced to follow. Just like derivatives trading, nobody will want to be left behind. Pundits and spokespeople will celebrate the end of the recession and the start of a new bull market. But in fact, it will be a bull with no balls.

Pause to Reflect

The global recession happening around us will leave very few people untouched, but rather than focus on the negative, there is an opportunity for people to make major shifts in their lives for the better.

From birth, we soon learn the words, "I want!" or "It's mine." Through our developing years we were rewarded by getting things. In adulthood we measured our success in terms of the stuff we have accumulated: like houses, cars, and electronics. But in truth our families have not prospered. Drug and alcohol use is problematic for many families; just as crime and violence has become the cultural norm in many of our communities.

Here in Godzone , New Zealand, young people are roughly divided into three categories; gang prospects, athletes, and victims. Although I live in a moderately affluent part of town, weekends are binges that see roving groups of drunken youth chasing the next event. Fights break open when these groups collide and generally the nights are occassioned by girls screaming and cars squeeling around town. Dogs bark and the sound of breaking glass and assaults on such things as street signs and mailboxes ring out.

I wonder how parents can sleep at night knowing their children are out there. Probably, they have become acclimatized to the whole scene and are generally content when the morning comes and their kids are back home. Two weeks ago there was an incident when one drunken teenage girl returned home in the company of three older boys at 3:00 in the morning. The mother came out and ordered her daughter inside the house. The daughter rained abuse at her mother who stepped in and grabbed her daughter. The daughter's screams prompted calls from to the local police, but as soon as they pulled up the daughter ran down the street in a great drama. She cried out for help to the police, saying her mother had assaulted her. The mother was arrested. I wonder where the father was?

As the economy forces us back to basic living, I hope many of us take a fresh look at our values and take stock of what is truly important. Family time and activities are generally cheaper than handing cash to the kids and telling them to have fun. At a time when stock dividends are becoming worthless, perhaps now is the time to invest back in our families.