The first principle of accounting is conservatism. Once that is lost it doesn’t matter what particular rules are made. It is clear from these scandals that the accountants were making what they new at the time to be risky statements.
Conservatism, unfortunately, is NOT the first rule anymore. I have a long ago archaic accounting degree, was a state bank examiner for 25 years, and am now a banker. The IRS and the SEC in the last few years have finally pressured the Federal regulators into implementing FAS5 and FAS 114 to account for loan loss reserves. Most banks conservatively overstated the Allowance for Loan and Lease Losses (ALLL) as kind of a rainy day capital account against unexpectedly heavy loan losses. Can’t do that anymore. You are hiding income that can be taxed and understating earnings, according to the IRS and SEC. Federal bank regulators finally caved in and now it is an “unsafe and unsound” banking practice to keep too much in your ALLL. What kind of convoluted bass ackwards thinking is that for a bank regulator like the FDIC, which was for many years jokingly called an acronym for “Forever Demanding Increased Capital”. Some of that “extra capital” would probably come in very handy during this subprime lending crisis. But no, modernizing our accounting practices is better . . . BS!!!!!!!!!!!