PRINCIPALS AND AGENTS AND ACCOUNTANTS (COMMENT).

PRINCIPALS AND AGENTS AND ACCOUNTANTS (COMMENT). Dick Weisfelder commented in particular about the success of executives of corporations in getting excessive compensation for themselves. I posted here about the success of investment banking executives in getting larger bonuses through shifting profits by accounting treatments. I quoted one wise lawyer: “The accountants have a lot to answer for. They let bankers do deals, mark them to market and take large profits, and then put the assets aside and forget about them.” Ironically, some economists had argued that the increased use of bonuses would serve to align the incentives of the executives with the interests of the shareholders. In practice, obviously, there were difficulties. Determining the amount of profits and the timing of profits is very complex, difficult, and controversial and executives have influence in accounting decisions. Nevertheless, accountants are an important protector of shareholders and of everybody else, as I will be discussing tomorrow.