Since the passage of the Sarbanes-Oxley Act in2002, the Financial Accounting Standards Boardhas passed rules that it promises will make corporateaccounting more transparent. In fact, itsrevised Generally Accepted Accounting Principleshave made it difficult for investors — or even CEOs — to understand a company's financial report.
The first step in the wrong direction camewhen FASB mandated that companies list"intangibles" such as "goodwill" as corporateassets, artificially inflating balance sheets. Afterthat, FASB meddled with the revenue recognitionrules, in some cases not allowing companiesto report revenue from cash payments receivedfrom a customer for a delivered product. Finally,and worst by far, FASB mandated punitive andnonsensical rules for so-called expensing ofstock options.
These accounting burdens, combined with theonerous yet ineffective mandates of the Sarbanes-Oxley Act, are starting to take a real toll onAmerican businesses and markets. In 2007, only$8.5 billion or 7.7 percent of the total $109 billionin issuances of Initial Public Offerings werelaunched on U.S. stock exchanges, down from60.8 percent a decade ago.