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Zhou Hua|Enron Incident, Subprime Mortgage Crisis and the Future of Generally Accepted Accounting Principles (Series 11) _ Rules

Release Time:2021-07-21 Topic:The main principles and rules of securities trading Reading:10 Navigation:Stock Liao information > Comprehensive > Zhou Hua|Enron Incident, Subprime Mortgage Crisis and the Future of Generally Accepted Accounting Principles (Series 11) _ Rules phone-reading

1. The outbreak of the Enron Incident. On October 16, 2001, Enron announced its financial status for the third quarter, announcing a total loss of US$618 million. The US Securities and Exchange Commission began a formal investigation of Enron on October 31. On November 8, Enron submitted a document to the US Securities Regulatory Commission, acknowledging that it had falsely reported a total of US$586 million in profits from 1997 to 2001 and did not account for huge debts. On December 2, Enron filed for bankruptcy protection in the court. The assets listed on the bankruptcy list were worth US$49.8 billion, making it the largest bankrupt company in American history at that time. As Enron’s auditor, Andersen Accounting Company knew that it had financial fraud and did not disclose it. The business undertaken by Enron had conflicts of interest, and the financial supervisor of Enron had an interest relationship with Andersen. After the incident, Arthur Andersen also destroyed documents, obstructing judicial investigations. In fact, Arthur Andersen went bankrupt in 2002 before the court sentenced it. The Enron incident is the result of large investment banks and accounting firms manipulating the securities market. It exposed the true face of US securities regulation.

The fraud cases of companies such as Enron and WorldCom have aroused strong public dissatisfaction. The US Securities Regulatory Commission and the Financial Accounting Standards Board have also taken people’s attention Efforts are directed towards the dispute between "principle-based" and "rule-based". Facts have proved that the Financial Accounting Standards Board is unable to formulate refined and easy-to-use accounting standards in a timely manner. The US Securities Regulatory Commission does not possess accounting expertise and is not interested in accounting affairs. The audit system of certified public accountants is useless. All this shows that the formulation mechanism of generally accepted accounting principles and the regulatory system of the securities market need to undergo major changes.

2. The introduction of the Sarbanes-Oxley Act of 2002. On July 30, 2002, the US Congress promulgated the "Public Company Accounting Reform and Investor Protection Act of 2002" (SOX, also known as the "Sarbanes-Oxley Act of 2002") To rectify the accounting and auditing order in the securities market is the focus of this law. It has made important amendments to the Securities Law (1933) and the Securities Exchange Law (1934), and is the most important securities regulation since the 1930s. This law requires that the financial appropriation for the US Securities Regulatory Commission be increased to 776 million U.S. dollars since 2003, and it should strengthen fraud prevention, risk management, market supervision and investment management. Of this amount, US$98 million was used to recruit 200 staff, with a view to strengthening the supervision of certified public accountants and audit services. The Sarbanes-Oxley Act of 2002 solves the financial problem of accounting standard-setting institutions and the independence of auditing standard-setting institutions (as shown in the figure), thereby helping to curb accounting companies from constantly adjusting donations To intervene in the process of setting accounting standards and auditing standards.

On April 25, 2003, the US Securities Regulatory Commission issued Policy Statement No. 33-8221, reiterating the financial The status of the Accounting Standards Board as a setter of accounting standards. What the Sarbanes-Oxley Act of 2002 has brought about is only a change in form, and the essence of the problem has not been improved much. Accounting standards are still hovering on the old road, and auditing standards are still a game in the circle of public accountants.

Instead of severely punishing the certified public accountant industry and improving the securities market audit system, the US government has instead given the public accountant industry a new business cake. The Sarbanes-Oxley Act of 2002 threw out the "404 clause" to divert public attention and opened up a new field of securities market business (internal control report audit) to the public accountant industry. The US Securities Regulatory Commission has not made great efforts to improve the generally accepted accounting principles. Its practice is actually to "build plank roads openly and secretly leave warehouses." In the face of improper generally accepted accounting principles, no matter how good the internal control system is, it will not play much role. "Section 404" is nothing but a heavy burden on public companies (companies that publicly issue securities), so that some companies angrily leave the European securities market, forcing the US Securities Regulatory Commission to lower the implementation of "Section 404" standards.

The fact that the U.S. Federal Securities Act directly provides internal control guidelines for public companies shows that legislators are aware that public company management is using their power to create There is a greater degree of freedom in false accounting information, and it hopes to be restrained by the internal control system. But the essence of the problem is that the patchwork of generally accepted accounting principles itself is oriented by management's intentions. It does not emphasize legal evidence, but emphasizes the improper rules of objective evidence. It is a toolbox for accounting fraud. In the face of such accounting rules, the auditor's report of the certified public accountant only states whether the financial statements of the audited entity follow generally accepted accounting principles, but cannot indicate whether these financial statements have legal evidence and credibility. It can be seen that the merit of the Sarbanes-Oxley Act of 2002 is that it is the first external supervision mechanism for the public accountant industry created by federal law since 1933, which slightly improves the supervision of auditors. However, As far as the reform of accounting standards is concerned, its promulgation is nothing more than a political show of controversy. All this was tested in the subprime mortgage crisis that broke out in 2008.

On July 25, 2003, the US Securities Regulatory Commission complied with Section 108(d) of the Sarbanes-Oxley Act of 2002 It is required to publish the "Research Report on the U.S. Financial Reporting System's Adoption of a Principle-based Accounting System" in the name of the staff of the US Securities Regulatory Commission. The report creatively proposed the concept and formulation of goal-oriented standards in addition to principles-based standards and rules-based accounting systems. The report believes that goal-oriented standards are superior to both rule-based and principle-based standards. In short, the US Securities Regulatory Commission decided to follow its own path.

In fact, there is no substantial difference whether it is based on principles or rules. The principles are so loud that they must be implemented in the rules in the end. The slogan "based on principles" is an out-and-out smokescreen. International Accounting Standards and Generally Accepted Accounting Principles are indeed "the scorpion of the same family."

On June 15, 2005, the US Securities Regulatory Commission complied with Section 401(3) of the Sarbanes-Oxley Act of 2002 Requirement, in the name of the staff of the US Securities Regulatory Commission to publish the "Report and Recommendations on the Transparency of the Arrangements with Off-balance Sheet Effects, Special Purpose Subjects, and Issuers Submitted Materials." The report covers issues in the fields of equity law, consolidated statements, leases, contingencies, derivative accounting, hedging accounting, and defined benefit pension plans. It has collected both positive and negative evaluations of these accounting rules. High theoretical value. The report proposed that reducing the complexity of generally accepted accounting principles will help improve the transparency and comprehensibility of financial reports. This view seems to be correct. However, the measures proposed in the report to reduce the complexity of generally accepted accounting principles are to further implement the rules that have caused widespread controversy after the outbreak of the Enron Incident.

2. The Financial Accounting Standards Committee launched fair value measurement standards (2006)

On October 24, 2005, the Institute of Certified Financial Analysts (CFA Institute) issued a statement praising the Financial Accounting Standards Committee for its fair value orientation The "progress" urges the Financial Accounting Standards Committee to further promote the fair value accounting rules [2]. The document believes that financial reports must disclose all the information required by common shareholders to make investment decisions. The Financial Accounting Standards Board and the International Accounting Standards Board have made progress in fair value accounting in recent years, mainly in terms of stock option expense, derivative accounting and pension information disclosure, but this is not enough. The current accounting Financial reports under the rules do not reflect the economic essence of business operations, and it is difficult for investors to understand the true value of the company.

The document recommends that financial statements and related information disclosure rules be designed in accordance with the needs of investors in order to provide all the necessary information for securities investment analysis. Information to help investors understand the "true value" of the company. The CFA Institute has put forward 12 principles, which mainly include the following aspects: Fair value information is the only information useful for financial decision-making. Therefore, complete fair value accounting should be used to replace traditional historical cost accounting; investors should not prepare statements. The reporter decides the "importance" level; public companies should not consider the consequences (such as performance fluctuations, etc.) when choosing the accounting treatment mode; all changes in net assets should be recorded in a new statement separately; assets and liabilities All changes in fair value should be recorded in the statement when it occurs; the cash flow statement should be prepared using the direct method; statement items should be presented according to their nature rather than their functions. For example, the current “operating costs” should be further subdivided into Human cost, raw material cost, etc.

The above requirements have received a positive response from the Financial Accounting Standards Committee, and the fair value measurement standards were promulgated immediately. The "Financial Accounting Standards Announcement No. 157-Fair Value Measurement" issued in September 2006 did not formulate new accounting rules. It just rearranged the fair value measurement rules that were dispersed in the complex system of generally accepted accounting principles at that time. Thus three levels of measurement rules are proposed: the first level is "quotations of homogenous substances in active markets", such as quotes in the securities market; the second level is the market prices of comparables; the third level is the use of unobservables The price estimated by the parameter based on the valuation model. The three-level fair value measurement rules designed by the standard proved to be completely invalid during the subprime mortgage crisis. "Accounting by valuation model" reveals that the essence of accounting standards is financial analysis rules. The author believes that since there is no original evidence to prove the public welfare and credibility of fair value information, no scientific fair value measurement criteria can be designed anyway.

Fair value is a financial analysis term lacking theoretical basis, and it does not belong to the scope of accounting. The price formation mechanism of financial assets is different from the law of microeconomics that prices depend on value and are affected by supply and demand. It's hard to be exhausted. There are so many valuation models, it is hard to say which one is more reliable. The latest market price of financial assets is not the result of all investors agreeing to express their will, but only the transaction price formed by the consensus of some investors. The common saying in the media is that "the market value has evaporated by several trillion yuan". The implicit idea is to estimate the market value of all shares by multiplying the transaction price of marginal investors by all equity. This statement lacks a reasonable basis in theory. In practice The effect is often just to cause market panic.

Before the promulgation of "Financial Accounting Standards Announcement No. 157-Fair Value Measurement", the practitioners expressed their opposition, but the Financial Accounting Standards Committee and The US Securities Regulatory Commission ignored them and supported them by some so-called "theoreticians" [3]. This standard applies to the fiscal year beginning on November 15, 2007, when the subprime mortgage crisis reached its peak.

3. The subprime mortgage crisis and the US Securities Regulatory Commission’s "Market Value Accounting Research"

fair value accounting And asset impairment accounting lacks a reasonable basis and played a disgraceful role in the subprime mortgage crisis.

(1) The procyclical effects of accounting standards p>

1. The brewing of the subprime mortgage crisis and the boosting effect of mark-to-market accounting. After issuing sub-prime mortgage loans to residents with lower credit ratings, small and medium banks will sell the asset package to investment banks to obtain cash. Investment banks design mortgage-backed securities (MBS) on the basis of these mortgage loans and sell them to companies and the public. This is called asset securitization. Investment banks also used MBS as the basis for "re-securitization" and introduced secured debt warrants (CDO). Such repetitions, designing new securities based on the existing securities in the market, led to a sharp increase in the variety of securities in the capital market. Traders cannot judge the degree of risk of many securities. At this time, insurance companies actually launched "financial insurance" for financial products, the so-called credit default swaps (CDS). Financial insurance has further pushed the scale of subprime loans to a new high, so what amount should be used to record financial instruments such as CDS? In 2000, the Financial Accounting Standards Committee issued the "Financial Accounting Concept Announcement No. 7: The Use of Cash Flow Information and Discounted Value in Accounting Measurements", which listed fair value as a measurement attribute in the accounting rules of the securities market and stated that "calculation of discounted The sole purpose of value is to estimate fair value". Since then, the calculation of the fair value of financial instruments based on the valuation model, that is, the accounting according to the estimated value calculated according to the mathematical formula, has become another major change in the financial statement system of mark-to-market accounting. The order of determining the fair value stipulated by mark-to-market accounting is: the first level, the use of the transaction prices of homogeneous items in the active market; the second level, the use of the prices of similar comparable items in the market; the third level, the use of market parameters The price calculated based on the valuation model. Under mark-to-market accounting rules, when trading financial assets appreciate in value, assets and profits must be added. In this way, in the case of cross-investment by financial institutions, the financial statements will produce performance "growth" that is greater than the actual appreciation, which will help fuel the flames. The improvement of the “on-balance sheet performance” of the financial statements will lead to higher credit ratings. Repeatedly, mark-to-market accounting and credit ratings have become powerful tools for creating false prosperity. In addition, for complex financial instruments, usually the buyer does not know the value of the financial instrument, and can only ask the seller to give an estimate, which provides convenience for financial institutions to modify their financial status.

2. The outbreak of the subprime mortgage crisis and the assisting effect of mark-to-market accounting. Since the spring of 2006, the subprime mortgage crisis began to appear and gradually spread to the entire capital market. The excess liquidity in the global money market eventually turned into a credit crunch. The driving effect of accounting rules on the accelerated decline of market conditions is mainly accomplished through two aspects: mark-to-market accounting rules and asset impairment accounting rules. For bonds classified as trading financial assets, when the market price of the bond falls, mark-to-market accounting requires that assets and profits be written down; for bonds classified as held-to-maturity investments, when the market price of the bond falls, the asset impairment accounting rules require Recognizing asset impairment losses will also write down assets and profits. In any case, the financial statements showed an increase in the asset-liability ratio and a decrease in the capital adequacy ratio, which forced banks to sell high-quality assets, which aggravated the downward trend of the market. This is the "procyclical effect" (or called the "procyclical effect"" unanimously condemned by the international economic community. "Pro-cyclic effect"). Of course, the improper behavior of rating agencies is also an important reason for the deepening of the financial crisis.

3. The source of procyclical effects. The market price information of securities observed by the company is only legal evidence of other people's transactions, not legal evidence of the company's accounting. However, mark-to-market accounting requires companies to keep accounts without legal evidence. Strictly speaking, this recording behavior is not accounting, but only a financial analysis behavior. The recorded amount only represents a financial expectation, that is, the expected value of one's own assets if it is transferred at this moment. Once this kind of expectation enters the financial statements, it will have an impact on market expectations, which in turn will affect market prices. Mark-to-marketAccounting is a bookkeeping behavior lacking legal evidence, and the expected reinforcement effect is the source of the procyclical effect of mark-to-market accounting rules.

(2) Political show of the US Securities Regulatory Commission and its accounting standard-setting agencies

On September 15, 2008, Lehman Brothers announced that it had filed for bankruptcy protection, and the subprime mortgage crisis reached its peak. At this time, the international community noticed that fair value accounting has a serious procyclical effect, and public opinion condemned it overwhelmingly. "Financial Accounting Standards Announcement No. 157-Fair Value Measurement" (2006) proved to be useless and harmful. The third-level fair value measurement that requires "accounting by model" is even more outrageous.

On September 30, the staff of the Office of the Chief Accountant of the US Securities Regulatory Commission and the Financial Accounting Standards Board jointly dealt with the issue of adopting the third level of fair value measurement. Issue an emergency statement. On October 2, the staff of the International Accounting Standards Board issued an announcement in support of the above emergency statement. The next day, the International Accounting Standards Board announced its four measures to respond to condemnation by international public opinion.

On October 3, the U.S. Congress passed the Emergency Economic Stability Act of 2008. Article 133 of the Act "Accounting Standards" requires the US Securities and Exchange Commission to negotiate with the Federal Reserve Board and the Department of the Treasury to study whether to suspend the "Financial Accounting Standards Announcement No. 157-Fair Value Measurement", including the balance sheet, Financial information and other matters are subject to accounting review, and the results of the investigation are reported to the US Congress within 90 days. Practitioners pointed out that the implementation of fair value accounting reflects the extreme focus on short-term behavior of the Financial Accounting Standards Committee when dealing with investment behavior. This thinking tendency has led to a pair of contradictions that are difficult to disassemble: On the one hand, regulatory agencies criticize Public companies adopt short-term behaviors for earnings management; on the other hand, the Financial Accounting Standards Committee is indulging in the implementation of accounting rules that pay too much attention to short-term performance [3].

On October 10, the Financial Accounting Standards Committee issued the "Determination of the Fair Value of Assets in the Inactive Financial Asset Market", which clarified the "Financial Accounting Standards Announcement No. 157—Fair Value Measurement in the application of inactive markets, and exemplified the main considerations for determining the fair value of a financial asset when the market for a financial asset is not active. On October 13, the International Financial Reporting Standards were revised to control their negative impact.

On December 30, the US Securities Regulatory Commission submitted a report entitled "Market Value Accounting Research" to Congress as scheduled. The report believes that fair value accounting is not the cause of the financial crisis and the failure of many banks. It affirmed the role of fair value accounting in financial reporting, and put forward five suggestions for improvement: ① Market value accounting should not be suspended; ② Reassessment of financial asset impairment accounting; ③ Provide more guidance for accounting professional judgment; ④The goal should continue to meet the needs of investors. In addition, the requirements of other users (such as prudential supervision) should also be met. If the needs conflict, investors should still be the focus; ⑤The accounting rules for financial investment should be simplified, The scope of application of market value accounting will not be expanded for the time being.

This "Market Value Accounting Research" reflects the stubborn position and opinion of the United States Securities Regulatory Commission, the Financial Accounting Standards Board, and the American Institute of Certified Public Accountants. Its disregard for financial stability. Regarding their position, banking regulators have consistently opposed it for decades.

Fourth, the compilation of generally accepted accounting principles

The patchwork of generally accepted accounting principles makes the accounting and auditing practitioners of public companies in the United States intolerable. In order to figure out the idea, the Financial Accounting Standards Board issued the Financial Accounting Standards Announcement No. 162-Hierarchy of Generally Accepted Accounting Principles", which comprehensively sorted out the effectiveness of generally accepted accounting principles in accordance with the hierarchy, but was quickly approved by the Financial Accounting Standards Announcement No. 168 issued in June 2009.replace. The Financial Accounting Standards Announcement No. 168 ""FASB Accounting Standards Collection" and the Level of Generally Accepted Accounting Principles" stated that the "FASB Accounting Standards Collection" is the source of generally accepted accounting principles recognized by the Financial Accounting Standards Board. The compilation of standards does not modify the original generally accepted accounting principles, but only summarizes the scattered rules according to nearly 90 issues. After the compilation of the standards is completed, the Financial Accounting Standards Committee will no longer issue financial accounting standards announcements, staff positions, and summary of the working group on urgent issues. It will update the compilation of standards in the form of an update of accounting standards.

Some scholars in our country advocate abandoning the accounting system when formulating accounting regulations and adopting accounting standards instead. The compilation of generally accepted accounting principles is a counter-evidence of the view that one-sidedly advocating accounting standards and opposing the formulation of accounting systems. As we all know, in France and Germany, accounting regulations are closely coordinated with tax laws and commercial codes, and their accounting legislation is more scientific and stable, and the tendency to be superstitious in American practices is not desirable.

5. Generally accepted accounting principles are once again challenged by members of Congress

In March 2009, Permat and Lucas initiated a legislative motion for the "Federal Accounting Supervision Commission Act", suggesting that the US Securities Regulatory Commission dominates public companies The current status of the right to formulate accounting rules, with a view to designing more objective and reasonable accounting rules. The proposal proposes the creation of a five-member Federal Accounting Oversight Committee composed of the Chairman of the Federal Reserve, the Secretary of the Treasury, the Chairman of the Federal Deposit Insurance Corporation, the Chairman of the US Securities Regulatory Commission, and the Chairman of the Public Company Accounting Oversight Committee. The committee is responsible for approving and overseeing generally accepted accounting principles. Its application. Unfortunately, the proposal could not be put to a vote.

Before 1938, the Ministry of Finance convened a series of meetings with representatives of major banking Existing regulatory policies including rules. The meeting held that the procyclical effect of fair value accounting has caused the U.S. economy to hover in a downward trend for eight years since 1929, causing serious distortions in bank accounting information, and having a serious impact on bank credit and the stability of the financial system. If fair value accounting continues to be used, it will adversely affect the performance of the banking industry's credit intermediary functions. Finally, the Treasury Department and major banking regulators abolished fair value accounting, which was one of the important policy turning points for the U.S. economy out of the Great Depression.

Sixth, how to look at the evolution of accounting rules

(1) Analysis of Ijiri Yuji >

In 2005, Yuji Ijiri analyzed in detail the environmental changes in the US securities market over the past 75 years and its impact on generally accepted accounting principles. He believes that accounting standards continue to require listed companies to provide predictive information in their financial reports, and this predictive information is often used for market manipulation-all of which are to satisfy investors' information requirements (that is, the usefulness of decision-making) Under the name of. But in essence, this orientation of accounting standards is not just a product of the change in the attitude of the US Securities Regulatory Commission, but to a greater extent, it may be due to the interests of the public accountant industry. Most flexible rules were actually designed and promulgated in the era of the Accounting Procedures Committee and the Accounting Principles Committee. The reason why the US Securities Regulatory Commission has changed its attitude since the 1970s is related to the re-emergence of the US financial class and the rise of neoliberalism, which requires analysis from the perspective of political economy.

(2) Analysis based on political economy p>

Accounting theory and accounting standards are actually serving the beneficiaries of neoliberalism, namely the financial class. Large accounting companies are part of the financial class. Generally accepted accounting principles areA set of rules separated from the legal system whose purpose is to protect the interests of the public accountant industry [4]. If the accounting rules are designed in accordance with legal principles, then public companies will keep accounts, pay taxes, and distribute according to simple and clear accounting rules. In this way, public accountants will not have much business to do. Conversely, the farther generally accepted accounting principles deviate from the legal system, the more difficult it is for ordinary people to understand them. The more difficult it is for public companies to compile financial reports in accordance with generally accepted accounting principles, and the more likely they are to hire the audit department of an accounting company to prepare financial statements (of course, auditing) It is the nature of "self-editing and self-examination" by accounting companies); the farther the GAAP deviates from the legal system, the more corporate income tax adjustments will be made, and the more likely it is for public companies to hire the tax department of an accounting company to handle tax declarations on their behalf; generally accepted accounting The farther the principle deviates from the legal system, the less net profit is recognized as "after-tax profit" in the company law, and the more likely it is for public companies to hire the consulting department of an accounting company to conduct management consulting services to determine dividend distribution policies.

Since the 1970s, the makers of generally accepted accounting principles have transformed accounting with financial economics, and the result is financial accounting Financialization is embodied in the following four aspects:

1. The goal of financial accounting has been repositioned. Simultaneously with the process of financialization, the mainstream of the academic community is striving to welcome the capital of alloy financing, preaching that "policies that are conducive to financial capital are policies that are conducive to the whole society." They claim that through the "drip effect", everyone will Benefit. The maximization of shareholder value has become the leading idea of ​​business management education, and the usefulness of decision-making is defined as the goal of financial reporting. With the rise of financial capital, financial assets have steadily expanded, which provides a solid platform for the introduction of fair value accounting. Fair value accounting, backed by financial economics, has gradually become an abstract accounting measurement principle. Without theoretical support, the standard-setters declared that their concern is not whether fair value should be used, but how to calculate fair value. The transition to fair value accounting is driven by the illusions and dreams of accounting rule makers, rather than the actual needs of the market. Fair value is the result of rule makers trying to transform accounting rules into financial analysis rules. Accompanied by it is the abstract concept of "users of financial statements". Decision-making relevance is based on information users, markets, and price information. Above the abstract concept. Advocates of fair value accounting have tried to change the social consensus of accounting from emphasizing the authenticity in the legal sense of recording real transactions to the financial authenticity based on discounting future cash flows. Fair value itself is not a legal category. Therefore, the process of introducing fair value accounting is also a process of "delegalization" of accounting. It is worth noting that many debates on accounting rules rarely mention law and commercial lawyers. The statements of supporters and opponents of fair value accounting are almost all financial economics, and there is no shadow of law. The promotion process of the concept of fair value is also the process of accounting to be separated from the society and insulated from the society [5].

2. Large accounting companies dominate the formulation of accounting rules, and accounting rules are becoming more flexible. The right to formulate international standards is actually firmly in the hands of a small group composed of Anglo-American accounting companies, and the oligopoly situation continues to this day [6]. In sharp contrast, business associations almost never participate in the standard setting of the International Accounting Standards Board. Large accounting companies have formed alliances with the securities industry, not only expanding rapidly in scale and geographical area, but also transcending accounting and auditing services to reshape themselves as all-round financial experts [7-9]. At the same time, accounting rules are becoming more and more flexible: the scope of application of asset impairment accounting and fair value accounting is expanding, and many accounting rules such as equity method, capitalization, and hedging accounting allow bookkeeping entities to lack legal facts. Bookkeeping, there are even rules such as bookkeeping according to "management intentions" and fair value options. The flexibility of accounting rules has in fact resolved the accounting supervision of the capital market, making the collective fraud in the capital market compliant [10]. These lack of logical self-consistent accounting rules have created obstacles for the public to understand the accounting operating mechanism. It was not until the crisis broke out that the international community discovered the tremendous changes in financial accounting.

3. CPA auditing is a formality. The "Securities Law" that was promulgated hastily in 1933 inappropriatelyGranting the audit power of the securities market to the public accountant industry has continued to this day. Nowadays, large international accounting companies, together with "private authority organizations" such as accounting rule makers and credit rating agencies, play the role of quasi-regulators of the securities market. The reasons for this are worthy of further investigation. The audit business agreement is a service contract in legal nature, and the audit report and its basic services are commodities traded by both parties. Therefore, the CPA audit does not have a supervisory function in theory. In practice, the flexibility of accounting rules makes auditing emptied, and the position of the CPA industry is becoming more and more commercialized [11, 12].

4. The mainstream of accounting academics is increasingly moving closer to the securities market. The empirical research paradigm based on market efficiency fundamentalism has become the standard paradigm for mainstream accounting academic journals in North America. The academic mainstream is more concerned with "what it is" rather than "what it should be," and tends to prefer the introduction of test accounting rules The "market reaction" afterwards. Empirical accounting research makes mainstream research more and more self-pity and self-referential, and its contribution to social development and accounting practice is lackluster. It also prevents the accounting discipline from absorbing the nutrition of other disciplines and developing in a more scientific and complete direction[ 13].

In short, accounting rules are influenced by the ruling elite and dominant ideology, and accounting practices in turn affect the distribution of wealth and power. Accounting rules put a legal coat on the existing power relations and wealth transfer through seemingly objective techniques. Generally accepted accounting principles are essentially a set of securities analysis rules that are jointly designed by securities market practitioners and are based on an original conceptual framework that is separated from legal principles [14]. It ultimately reflects the interests of the securities industry [15]. The performance of Generally Accepted Accounting Principles and International Financial Reporting Standards in the subprime mortgage crisis provides an opportunity to reflect on the American experience and international practices.

Seven, re-understand the American experience

(1) The experience of setting generally accepted accounting principles in the U.S. securities market is of little reference value p>

From a legal point of view, accounting rules usually need to closely follow the basic principles of the company law or tax law to formulate. However, the formulation of generally accepted accounting principles was formulated by private institutions such as the American Institute of Certified Public Accountants authorized by the US Securities Regulatory Commission in the absence of a unified federal company law. This approach is obviously a special case. Generally accepted accounting principles belong to securities information disclosure rules in nature, not to accounting regulations (such as accounting systems) that people usually call. In fact, the power of corporate legislation belongs to each state, and the federal securities law can only interfere with the disclosure of securities information, but cannot enter the field of accounting legislation. The US federal government’s supervision of accounting issues has to start with the securities market. This is an accident of history, not the result of careful argumentation. Accounting issues in the French context of the US Federal Securities are all issues of securities information disclosure. From a legal point of view, the securities law is a special law of the company law. This means that in the U.S. securities market, the securities information disclosure rules including generally accepted accounting principles lack the support of uniform company law. The formulation of accounting standards is tantamount to building a castle in the air, which will inevitably lead to a messy state of accounting rules. In theory, it is difficult to apply legal principles to formulate accounting regulations that are uniformly applicable to each state, and it is also difficult to divide the boundaries of securities information disclosure. As a special federal agency, the US Securities Regulatory Commission has legislative, law-enforcement and administrative powers related to securities regulation. Under this unique regulatory framework, securities supervision is in fact a free kingdom, and this framework is not suitable for my country's national conditions. Therefore, the generally accepted accounting principles in the US securities market are of little value to accounting legislation.

(2) Generally accepted accounting principles are the general term for flexible accounting rules in the securities market

Generally accepted accounting principles are just a play in the stock market, and it is a price that listed companies have to bear. The logic of the accounting and auditing system in the U.S. securities market is as follows: The main players in the securities market (ie, the American Institute of Certified Public Accountants, financial managersAssociation, Financial Analyst Association, Securities Industry Association), together with their defenders (American Accounting Association), "demonstrated" a set of generally accepted accounting principles.

For the securities regulatory authorities, the accounting behavior of listed companies cannot be ignored or arbitrarily controlled. The so-called building a prosperous, liquid, fair and open, and healthy securities market, these words all mean the same thing-to increase the transaction volume is the last word. Generally accepted accounting principles are the general term for various flexible rules selected by accounting rule makers from the existing practices of public companies, and their "arguments" have the nature of "existence is reasonable". This set of flexible accounting rules has many "advantages". The management of public companies (including CEOs and CFOs) have since gone into no one. When facing litigation, they can use "generally accepted accounting principles" as an excuse. So as to evade legal sanctions; CPAs also claimed that their auditing process complies with auditing standards, and that the client’s accounting treatment complies with "Generally Accepted Accounting Principles," and also evades their legal responsibilities; the US Securities Regulatory Commission, as a supervisory authority, shirks responsibilities cleanly: Accounting auditing is a rule recognized by the market, accounting fraud (or financial fraud) is not the responsibility of the CSRC. In short, generally accepted accounting principles are not an accounting system in the usual sense, but a toolbox for listed companies to falsify compliance. With generally accepted accounting principles, compliance fraud has become the norm in the US securities market.

(3) Accounting standards are just a game in small circles

Large listed companies, major accounting companies, and investment banks (securities companies) are the protagonists. In countries such as the United States, Canada, Australia, and New Zealand, the standard-setting function was initially dominated by practicing public accountants (in the 1930s and 1940s). Only in the United States and Canada did academia have a small amount of participation. Later, as the proportion of non-practising accountants increased, the standards also deviated more and more from traditional accounting. Non-practising accountants are more inclined to compile accounting information useful to economic decision-makers than accountants, and accountants may be too constrained by their traditional vocational education or training and stick to the historical cost framework [16]. Although accounting rule makers claimed that accounting standards were formulated in response to the needs of the capital market, users of financial statements did not appear on influential accounting forums, and users of financial statements were only involved in accounting symbolically rather than substantively. In the process of rulemaking. In practice, the audit industry and its lobbyists have exerted a greater influence on the formulation of accounting rules. In contrast, in theory, people often think that accounting rules will reflect the requirements of the capital market and regulatory authorities [8]. In the context of accounting standards, accounting is like a magic trick. Financial statements contain a large number of expected factors and lack the support of civil and commercial law and economic law, which leads to the lack of legal proof in accounting books. The mystification of accounting technical rules has created obstacles for the public to enter the accounting industry.

8. The future of generally accepted accounting principles

Some researchers pointed out that the generally accepted accounting principles system itself needs a major overhaul. Public companies prepare financial statements mainly because they are required to do so by the US Securities Regulatory Commission. Few CEOs believe that the results of such work have any value in themselves. Few accounting firms really care about the quality of financial reports. They are more than price than quality.

Securities supervision itself requires real accounting information. If it deviates from the basic principle of "bookkeeping based on legal facts", then accounting rules will not be possible. For accounting rules, securities supervision has become a castle in the sky. With the generally accepted accounting principles, the securities regulatory system established by the Securities Act (1933) was resolved by flexible accounting rules. The authenticity of information should become the foundation of the securities regulatory system, and the accounting standards that are the cornerstone of the securities regulatory system should firmly adhere to the basic principle of "keeping accounts based on legal facts." The current generally accepted accounting principles make the factual information and expected information in the accounting statements mixed, which greatly damages the public welfare and credibility of the financial statements. If we want to improve the generally accepted accounting principles system, we must pay attention to and solve this problem.

Business operations must follow the laws of the place where it is registered, and the legal system is an insurmountable obstacle to generally accepted accounting principles. Therefore, GAAP has two possible optimization paths. One path is to return to the correct path of "accounting according to legal facts" and truthful disclosure. In this way, state companies only need to disclose securities information in accordance with their legal facts, which is a basic requirement of the securities law. The securities law has never proposed comparability requirements. Therefore, companies do not have to consider comparability with other companies. This path is the path of traditional accounting, which means the end of the CPA industry. Will the CPA industry focus on the public interest as it advertises, thus giving up huge industry interests? This is still a big question mark. The other path is to completely override the law and create a securities information disclosure rule that is separate from the law and parallel to the law, and mainly relies on the private authority to implement the securities information disclosure rules. In this way, the generally accepted accounting principles will be repositioned as financial analysis rules and securities information. Disclosure rules.

The fierce controversy faced by fair value accounting rules deeply reflects the contradictions faced by generally accepted accounting principles. On the one hand, from the perspective of public interest, securities information disclosure rules must strictly separate legal facts (embodied in accounting original vouchers, historical cost accounting) and financial expectations (such as asset impairment, fair value information). But in this way, simple and easy-to-use accounting rules are tantamount to announcing the end of the public accounting profession. On the other hand, from the perspective of industry interests, securities information disclosure rules that deviate from laws and regulations are the way for the public accountant industry and even the securities industry to dig money. Accounting standards (collectively referred to as flexible accounting rules) facilitate the promotion of audit services, tax services, management consulting, and internal control audit services for the public accountant industry. But even if you put aside the negative impact of fair value accounting on business management, it is bound to have a serious negative impact on macroeconomic regulation. One of the most direct impacts is the impact on the prudential supervision of the banking industry. In this regard, the securities industry and the banking industry do not expect to reach a consensus on fair value accounting in the future. Therefore, the future generally accepted accounting principles may show a seesaw-like dynamic between the fair value concept dominated by the securities industry and the prudential supervision concept advocated by the banking industry and its regulatory agencies for a long time. "Historical cost accounting + fair value disclosure" is the most thorough solution, but given the existence of the above-mentioned industry interests, this solution may take a long time to be realized in the US securities market.

〇This article is the eleventh article in the series of "The Origin of Accounting Rules".

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Author affiliation

1. Business School, Renmin University of China, Beijing 100872;

2. Institute of Financial Accounting, Renmin University of China, Beijing 100872;

3. Accounting Innovation of Renmin University of China Application Support Center, Beijing 100872

Fund Projects

Special Funds for Fundamental Scientific Research of Central Universities Funding project (Research Fund Research Brand Project of Renmin University of China) "Research on the Optimization Path of China's Accounting Regulation System——Also on the Dilemma and Improvement of International Financial Reporting Standards" (Project No.: 16XNI006)

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