Enron-style accounting under scrutiny in US

A company using a so-called 'Enron' accounting method is under scrutiny after it emerged that it plans to book estimated future gains from investments as current revenues.

The plans of the Blackstone Group were disclosed in the filings for its IPO, which detailed how Blackstone plans to book the present value of fees it expects to receive on its investments at the time the investment is made.

If the expected fees increase, the firm could book additional fees prior to the receipt of any actual revenue from the sale of the investment.

Blackstone's use of 'fair value' accounting has been criticised for 'gaming the system' with the fear that the company can use 'fair value' to deceive the capital markets.

One investment banker referred to it as 'Back to the Future Accounting' because it allowed the firm to capture gains from the future and bring them into the present.

The method was once used by many companies, most notably Enron, the Wall Street Journal reported.

It led accounting rule makers then to ban firms from booking immediate gains from certain transactions that didn’t trade in active markets.

Further reading:

Blackstone’s 'Enron' Accounting

Blackstone's aggressive accounting

SEC worries over abuse of accounting rules