Abraham Briloff An Accounting Hero for the Ages

Abraham Briloff An Accounting Hero for the Ages
Grumpy Old Accountants
Op/Ed
By: Anthony H. Catanach Jr. and J. Edward Ketz
July 2012 — This year marks the 40th anniversary of
“Unaccountable Accounting,” a tart polemic by Abraham
Briloff. In this love-it-or-hate-it text Briloff debunked many
accounting myths, pointed out the shortcomings of corporate
financial reporting, discussed the fragility of GAAP in the
hands of accounting marauders, described the ineptitude or
conspiratorial nature of auditing firms, warned investors that
the worst was yet to come, wondered why academics
abandoned accounting for financial economics, and asked
whether society would ever create institutions and provide
incentives to improve financial accounting. To our chagrin,
the business community and government officials ignored the
warnings of this accounting prophet and we have paid the
price as 10-Ks, 10-Qs, proxy statements, and other SEC filings
increasingly are filled more with confetti than facts and
figures. Indeed, the worst has come!Abe wrote several books. The first was The Effectiveness of
Accounting Communication, which evolved from his doctoral
dissertation at NYU. Written in 1965, he notes the need for
crisp, precise writing in financial reports so that the
communication by management to the investment community
is clear and unambiguous. He then demonstrates how the
term generally accepted accounting principles is imprecise
and fraught with multiple interpretations. From there Briloff
points out a variety of other breakdowns in the
communication process.
Unaccountable Accounting (1972) is Briloff’s second and most
famous book. He builds on the principles of his first book and
Abraham Briloff An Accounting Hero for the Ages 2
enumerates dozens and dozens of examples where the
managers misapplied accounting rules and the auditors did
nothing about them. Examples come from the late 1960s up to
1971. These include such marvelous cases as Litton, Leasco,
National Student Marketing, Telex, Memorex, Mill Factors,
Occidental, and Great Southwest. He ends the text with “quo
vadis,” which loosely translated means “where are we
headed?” It is more of plea to the profession rather than a
question about the future.
More Debits Than Credits followed next in 1975. This book
acts as a sequel to Unaccountable Accounting inasmuch as
Briloff adds more and more illustrations. Now managers,
directors, and audit firms give us Stirling Homex, Lockheed,
U.S. Steel, and ITT, among others. He concludes by saying that
we are in great peril and that he is despairing, though not
despondent.
The last text is The Truth about Corporate Accounting (1981),
and it is more of the same. The profession shamed itself with
fiascos during the late 1970s at Tenneco, LTV-Jones&Laughlin,
Kennecott, Gelco, GE, and Northrop. He included updates on
cases mentioned in previous books and their status in the
courts and with the regulators. Briloff adds another “quo
vadis.” This time it is more of an alarm clock, attempting to
wake the profession from its stupor.
Of these four books, Unaccountable Accounting is the most
popular. Exactly why is unclear. One might hypothesize that
it added flesh to the arguments in the first book by including
fresh meat from the marketplace. The logic in the last two
books did not change appreciably from Unaccountable
Accounting; rather, they just added examples, demonstrating
that change was indeed needed.
Unaccountable Accounting is still admired by investors and
hated by managers and auditors, though it is not as well
known by younger members of the profession. It should be
required reading for accountants to remind ourselves that the
Abraham Briloff An Accounting Hero for the Ages 3
profession’s problems are not new, and that they can snowball
when society ignores them. If the CPA exam were truly a
professional exam instead of just a test about a smattering of
technical tools, it would ask about the contributions of Briloff
and other accounting heroes.
We called Professor Briloff to discuss the book and see what he
is doing now. He continues to say that he is “despairing but
not despondent” about the profession and its ability to change.
He hopes not for external pressures, but for the profession
itself to become convinced of its shortcomings and to reform.
Abe did say that 15 years ago he accused firms of questionable
accounting, but not fraud; today, however, he would and he
does.
As Abe Briloff approaches 95, he shows no signs of quitting.
Interestingly, he talked about his last paper, coauthored with
his daughter Leonore. In “Where Did the $15.8 Billion Go,”
published in Barrons last October, they examined the
financials of HCA and its metamorphosis into HCA Holdings.
Essentially the Briloffs analyze these financials and concluded
that the firm has de facto employed pooling of interest
accounting. This is because the SEC filings state that the
accounting for this recapitalization has “no adjustments to the
historical basis to our assets and liabilities.” The missing costs
are missing because that’s the way pooling of interests work—
by stealth and by sleight of hand.
One might point out that the FASB disallowed pooling of
interests in 2001 when it issued Statement No. 141. Indeed, the
Briloffs point out that fact in the article, and they are still
waiting for a response from managers of HCA Holdings and
from its audit firm E&Y. They also would like to know why the
SEC did nothing about this improper accounting. Abe
concludes, “Somehow there is a belief that whatever is, is
right.”
We think that Abe Briloff has been a shining light for the
profession and deserves respect for his insights and his moral
Abraham Briloff An Accounting Hero for the Ages 4
stance. If we would follow his leadership, the profession
would be stronger and more resilient against temptations by
managers. If we pursued the paths he has trod, the investment
community would be less susceptible to the shenanigans of
corporate America. (Also see the essay by Gary Weiss,
“Abraham J. Briloff: Champion of Accounting and
Accountability.”)
Instead, the profession either attempts to silence him or to
ignore him. It did the former when the AICPA brought
trumped up ethics charges against him a few years back. It
does the latter by not acknowledging his greatness, for
example, not naming him to the Accounting Hall of Fame.
Anybody interested in real ethics and real reform in
accounting will admire and appreciate the great work
performed by Abraham Briloff. His works need to be read and
digested and communicated to others. Let us learn from the
cultural heritage of accounting greats like him.
Abe turns 95 on Thursday. Happy birthday!
This essay reflects the opinion of the authors and not
necessarily the opinions of SmartPros, The Pennsylvania State
University, The American College, or Villanova University.
More by Anthony H. Catanach Jr. & J. Edward Ketz
GAAP Is CRAP: The Case of JP Morgan
http://accounting.smartpros.com/x73974.xml