295.F公允价值计量属性的探析 外文原文.doc
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1、Fair-value accounting: A cautionary tale from EnronGeorge J. Benston *Goizueta Business School, Emory University, Atlanta, GA 30322, United StatesAbstract:The FASBs 2004 Exposure Draft, Fair-Value Measurements, would have companies determine fair values by reference to market prices on the same asse
2、ts (level 1), similar assets (level 2) and, where these prices are not available or appropriate, present value and other internally generated estimated values (level 3). Enron extensively used level three estimates and, in some instances, level 2 estimates, for its external and internal reporting. A
3、 description of its use and misuse of fair-value accounting should provide some insights into the problems that auditors and financial statement users might face when companies use level 2 and, more importantly, level 3 fair valuations. Enron first used level 3 fair-value accounting for energy contr
4、acts, then for trading activities generally and undertakings designated as merchant investments. Simultaneously, these fair values were used to evaluate and compensate senior employees. Enrons accountants (with Andersens approval) used accounting devices to report cash flow from operations rather th
5、an financing and to otherwise cover up fair-value overstatements and losses on projects undertaken by managers whose compensation was based on fair values. Based on a chronologically ordered analysis of its activities and investments, I believe that Enrons use of fair-value accounting is substantial
6、ly responsible for its demise.1. IntroductionThe US and International Financial Accounting Standards Boards (FASB and IASB) have been moving towards replacing historical-cost with fair-value accounting. In general, fair values have been limited to financial assets and liabilities, at least in the fi
7、nancial statements proper.1 A Proposed Statement of Financial Accounting Standards, Fair-Value Measurements (FASB, 2005, p.5), specifies a fair-value hierarchy. Level 1 bases fair values on quoted prices for identical assets and liabilities in active reference markets whenever that information is av
8、ailable. If such prices are not available, level 2 would prevail, for which quoted prices on similar assets and liabilities in active markets, adjusted as appropriate for differences would be used (FASB, 2005, p.6). Level 3 estimates require judgment in the selection and application of valuation tec
9、hniques and relevant inputs. The exposure draft discusses measurement problems that complicate application of all three levels. For example, with respect to levels 1 and 2, how should prices that vary by quantity purchased or sold be applied and, where transactions costs are significant, should entr
10、y or exit prices be used? As difficult as are these problems, at least many independent public accountants and auditors have dealt with them extensively and are aware of measurement and verification pitfalls. However, company accountants and external auditors have had less experience with the third
11、level (at least for external reporting), which use estimates based on discounted cash flows and other valuation techniques produced by company managers rather than by reference to market prices. Indeed, there are few situations that have revealed the problems encountered when companies use third lev
12、el estimates for their public financial reports. Instances in which transaction-based historical-based numbers have been misleadingly and/or fraudulently reported abound, such as companies reporting revenue before it is earned (and sometimes not ever earned), inventories misreported and mispriced, a
13、nd expenditures capitalized rather than expensed. Mulford and Comiskey (2002) and Schilit(2002) provide many illustrations of suchschenanigans (as Schilit characterizes them). But they (and to my knowledge, few, if any, others) do not describe how fair-value numbers not grounded on actual market pri
14、ces have been misused and abused. Enrons bankruptcy and the subsequent investigations and public revelations of how their managers used level 3 fair-value estimates for both internal and external accounting and the effect of those measurements on their operations and performance should provide some
15、useful insights into the problems that auditors are likely to face should the proposed SFAS Fair-Value Measurements be adopted. Although Enrons failure in December 2001 had many causes,2 both immediate (admissions of massive accounting misstatements) and proximate (more complicated, as described bel
16、ow), there is strong reason to believe that Enrons early and continuing use of level 3 fair-value accounting played an important role in its demise. It appears that Enron initially used level 3 fair-value estimates (predominantly present value estimates) without any intent to mislead investors, but
17、rather to motivate and reward managers for the economic benefits they achieved for shareholders. Enron first revalued energy contracts, reflecting an innovation in how these contracts were structured, with the increase in value reported as current period earnings. Then level 3 revaluations were appl
18、ied to other assets, particularly what Enron termed merchant investments. Increasingly, as Enrons operations were not as profitable as its managers predicted to the stock market, these upward revaluations were used opportunistically to inflate reported net income. This tendency was exacerbated by En
19、rons basing managers compensation on the estimated fair-values of their merchant investment projects. This gave those managers strong incentives to over-invest resources in often costly, poorly devised, and poorly implemented projects that could garner a high fair valuation. Initially, some contract
20、s and merchant investments may have had value beyond their costs. But, contrary to the way fair-value accounting should be used, reductions in value rarely were recognized and recorded because they either were ignored or were assumed to be temporary. Market prices, specified as level 2 estimates in
21、Fair-Value Measurements (FASB, 2005), were used by Enron to value restricted stock, although in most instances they were not adjusted to account for differences in value between Enrons holdings and publicly traded stock, as specified by the FASB. Market prices were also used by Enrons traders in mod
22、els to value their positions. In almost all of these applications, the numbers used tended to overstate the value of Enrons assets and reported net income. As the following largely chronological description of Enrons adoption of level 3 fair-value accounting shows, its abuse by Enrons managers occur
23、red gradually until it dominated their decisions, reports to the public, and accounting procedures. Although, technically, fair-value accounting under GAAP was limited to financial assets, Enrons accountants were able to get around this restriction and record present-value-estimates of other assets
24、using procedures that were accepted and possibly designed by its external auditor, Arthur Andersen.2. Enrons adoption and use of fair-value accountingEnrons initial substantial success and later failure was the result of a succession of decisions. Fair-value accounting played an important role in th
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