What Lehman reveals about non-disclosing disclosures in 10Ks

For those of us who periodically try to glean genuine information about what is going on financially within a publicly listed company, this statement by the Lehman examiner, Anton Valukas, rings far too many bells:

In a few of its financial statements, Lehman stated that “The Company accounts for transfers of financial assets in accordance with SFAS 140” and followed this statement with a summary of SFAS 140’s three criteria for recognizing the transfer of financial assets as sales.3767 In these instances where Lehman made the general disclosure regarding SFAS 140: (1) the SFAS 140 disclosure was listed under “Consolidation Accounting Policies” along with a disclosure regarding Special Purpose Entities or was part of a “Securitization activities” disclosure; (2) Lehman did not state that it treated some repo transactions as sales under SFAS 140; and (3) the financial statement contained other disclosure(s) stating that Lehman treats repo transactions as secured financings (i.e., not as sales) and/or regarding securities owned and pledged as collateral (as described above).  [h/t zero hedge]

How many times have you looked for information in a financial statement, only to find a statement like “we account for sales under SFAS 140” and a cut and paste of the text of the accounting standard with minimal if any disclosure of what is accounted for using this standard, what the dollar values are of these transactions, etc.?  Reading a financial statement often leaves me feeling that 90% of the “disclosure” is just another form of non-disclosure.

Can the SEC please start randomly reviewing reports and fining firms and their auditors significant amounts for insufficient disclosure?


How to increase the ranks of the Big Four auditors

After reading Francine McKenna on PwC, I have a proposal that would be of extraordinary value in helping shareholders understand the meaning of financial reports — if the structure of the accounting industry doesn’t change to avoid such disclosure:

Require auditors to publicly report the variation in valuation of identical financial instruments on the books of their clients (probably limiting disclosure to instruments over a threshold market or notional value).