Valeant: Why Enron-era accounting never really died with Enron

[malaise]

http://fortune.com/2015/11/02/valeant-why-enron-era-accounting-never-really-died-with-enron/
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Sarbarnes-Oxley was supposed to stamp out the accounting tricks of a decade and a half ago. Here are the ways regulators blew it.

Imagine you’re a portfolio manager in 2002. You bump your head on a doorway in a leap for joy upon the signing of the Sarbanes-Oxley Act, the law that was a response to Enron and other accounting scandals, and sink into a 13-year coma.

That act should have ushered in a new era of corporate honesty and accountability to shareholders in terms of corporate accounting and the auditing profession. It created the Public Company Accounting Oversight Board (PCAOB) to oversee auditors and their work. It provided stable, independent funding for the Financial Accounting Standards Board (FASB) under the auspices of the Securities & Exchange Commission (SEC). It called for the SEC to issue rules reining in hokey earnings release reporting. In short, it should have been a boon for investors, whether institutional or individual.

Now imagine you awaken from the coma and return to your old position (after rehabilitation, of course). Valeant Pharmaceuticals is under fire from a short-seller, in part for not making proper disclosures and for having a shadowy variable interest entity (VIE), giving you Enron déjà vu. International Business Machines’ revenue reporting is under SEC scrutiny. Your head spins from the dizzying array of “non-GAAP earnings” presented in earnings releases; you feel old-fashioned but it’s hard to accept that so many things are excluded from earnings by companies – and the analysts seem to just lap it up. You wonder where the auditors are, or what the SEC is doing. If the FASB was supposed to be strengthened by Sarbanes-Oxley, you wonder why earnings prepared under their prescribed standards are now simply figures perfunctorily filed with the SEC, serving as a platform from which juicier-looking earnings figures are prepared. How could earnings have become so meaningless?

What happened in thirteen years? Why didn’t things change more for the better? A few things might help inform your Rip Van Winkl-esque mind:

Maybe everything old is new again, Rip. History doesn’t repeat, but it sounds like it’s trying to rhyme.