What I find fascinating about managers at Lehman’s is not so much what they did, but that the public is shocked—shocked!—at another accounting game.  As if these behaviors were going to stop!

On what basis would the public believe that corporate accounting had become the truth, the whole truth, and nothing but the truth?  Maybe they thought that Sarbanes-Oxley was the golden legislation that solved all our problems.  But, as most of the act was incremental changes over previous dictates, that conclusion has exaggerated and continues to exaggerate the reality.

Besides, legislation today will never focus on the real issues of creating incentives for managers to walk the straight and narrow, generating disincentives for those who walk astray, and making sure these things are enforced.  In today’s partisanship, what happens depends on who is in office.  If it is the Republicans, they’ll talk about ethics and close their eyes.  If it is the Democrats, they will ignore current violations and pass new legislation as they continue to build the Great Socialistic Society.  And neither party enforces the law, unless you count the SEC’s fining of shareholders as enforcement.

With fewer accounting tricks, as documented by USA Today, maybe the public felt that the tide had turned.  Maybe it had, but the cycle continues.  Managers find accounting chicanery easier to carry out at some times than others.  Never mistake a lull in accounting tricks as their cessation.  It is merely a rest before a return to lies, damned lies, and accounting.

Perhaps people felt that the auditors were ferreting out fraud.  While the auditors at least have to worry about potential lawsuits, that apparently does not mean that they are always skeptical of management’s actions, even with a credible whistleblower.  Audits in the U.S. are better than audits in other countries, but there is still room for improvement.  Let’s not think that the auditors are always vigilant.

Maybe with stock market prices going up after an extended downturn, folks started believing that the economy was resurging.  I cannot share that optimism for we have so many asset bubbles yet to burst.  Even if it were true, increasing stock market prices just accent the perverse incentives in our economy, as corporate managers and directors attempt to maximize their own wealth through share-based compensation, and accounting is merely a tool to accomplish their goals.

No, I don’t see much reason for accounting frauds to cease.  I laugh when I watch television programs, listen to radio broadcasts, and read news accounts and op-ed pieces that lash out at the rascals that dominated Lehman Brothers.  What are these people thinking?  Why is anybody shocked?

The heart is deceitful above all things and desperately wicked—who can understand it?  Clearly, not those who are shocked at the revelations by Valukas.

This essay reflects the opinion of the author and not necessarily the opinion of The Pennsylvania State University.

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J. EDWARD KETZ is accounting professor at The Pennsylvania State University. Dr. Ketz's teaching and research interests focus on financial accounting, accounting information systems, and accounting ethics. He is the author of Hidden Financial Risk, which explores the causes of recent accounting scandals. He also has edited Accounting Ethics, a four-volume set that explores ethical thought in accounting since the Great Depression and across several countries. He is the co-author of a monograph, Fair Value Measurements: Valuation Principles and Auditing Techniques (with Mark Zyla, Managing Director, Acuitas, Inc.) published by BNA in 2007.