PracticeAuditEnron-style accounting under scrutiny in US

Enron-style accounting under scrutiny in US

Company's plans to book future gains as current revenues revealed in IPO filing

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

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