A look at perhaps the “rock star” of the field of accounting, after-the-jump ….
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I know, I know: accounting rock stars seems like an oxymoron …. so bad that economists are often described as being “good with figures … but didn't have enough personality to become an accountant.”
Yet my accounting/finance professors in the mid-late 70’s always told us to read Abe Briloff’s books, where he was criticizing his own profession. Well, I didn’t even have time to read my textbooks, so that went by the wayside.
Had I done so, I would have seen why he was so popular: in addition to his academic teaching and books, he also wrote scathing Op-Ed pieces. There were no sacred cows for him, he wrote about lax regulations (even garnering praise from Ralph Nader), he sometimes changed bad corporate behavior …. and later I came to understand that he played an (unseen) key role that helped thwart government attempts to harass Dr. Martin Luther King. His story needs to be more widely told.
Born in NYC to Russian immigrant parents in 1917, he was legally blind, though not completely: he could walk around, write notes and the like, according to the former NYT financial reporter Floyd Norris. But for reading financial footnotes, he had to rely upon graduate students as a professor (and his daughter years later in retirement.
He attended the City College system of NYC, in what is today called Baruch College. Graduating in 1937, he was inspired by Professor Emmanuel Saxe (today, there is an endowed chair named for him). Briloff explained that in the 1930’s accountants were thought of as mere bookkeepers — an attitude that hasn’t gone away entirely — which is one reason that Briloff began as a high school teacher of accounting and stenography. Yet Saxe considered it to be “an advanced body of knowledge that required a commitment to service” with a great deal of analysis, and that is what Briloff helped to bring about through his work.
He supplemented his high school teaching with part-time work at a public accounting firm, joined in the 1940’s and eventually made partner. He began his own accounting firm in 1951.
In academe, he obtained a masters in Education in 1941, began teaching at his alma mater in 1944, and obtained his PhD from New York University in 1965. His doctoral thesis was entitled “The Effectiveness of Accounting Communication.” In 1967 he wrote a book (with the same title) based on his dissertation research, which he considered his best work.
Yet it was his three later (and more scathing works) that became one half of his rise to notoriety. In 1972 Unaccountable Accounting was published — where he noted what the profession should be, an ombudsman— rather than a passive acceptance of corporate footnotes, where questionable practices can be buried. He followed-up in 1976 with More Debits Than Credits: The Burnt Investor's Guide to Financial Statements and in 1981 with The Truth About Corporate Accounting— in which he noted that the profession’s long-stated guidelines, known as generally accepted accounting principles (GAAP).
A basic problem, Briloff observes, is that there are gaps in GAAP, which, among other things, permit unprincipled executives to manipulate earnings results and squirrel funds for payoffs or other disreputable purposes--undetected as well as unchallenged by their outside auditors.
In interviews, he often referred to CRAP: Cleverly Rigged Accounting ploys.
The other major break in his career was a 1968 essay he wrote for an academic journal about “pooled interest” — when they made acquisitions to hide costs and later create completely fraudulent profits. As the former NY Times financial reporter Floyd Norris told it:
Few read it, I suspect, but one who did was Bob Bleiberg, the editor of Barron’s. Steve Anreder, who was Abe’s first editor at Barron’s, says Mr. Bleiberg contacted Abe and asked him to write a piece for Barron’s.Over the years he wrote dozens more, and became by far the most prominent accounting critic. His articles often caused stock prices to plunge, never to recover.
None of those articles ever had any information that was not already public. If you believe in the efficient market hypothesis, Abe should not have existed. But he did. What he did was tirelessly go through the financial statements and footnotes, and figure out how accounting rules were being abused.
Why did others not do that? After Abe, more did. But not enough. It was not until 2001 that the Financial Accounting Standards Board finally killed pooling of interest accounting.
As previously noted, his essays even had Ralph Nader subscribing to Barron’s.
His essays in Barron’s (while dealing with different issues) had common denominators. Often the companies he complained about said that their practices were legal — for which he replied that was the problem. He railed against the major accounting firms (for being too cozy with clients) — and often received scorn by the Big 8 firms (today, merged-down to 4) as well as the American Institute of CPA’s. He also named names of big corporate CEO’s he thought were unethical.
As noted above, a scathing essay in Barron’s often tanked a company’s stock, which became known as the Briloff Effect. It was often suggested that he had shorted company stock (in expectations its price would fall) … in fact, he often bought a very small # of shares, just to be able to receive shareholder reports (when these were not online).
Some of the other sacred cows he took on were the 1968 merger of LTV and Gulf & Western, and was sued by in the 1970’s by Saul Steinberg for inconsistent lease accounting … which did not succeed. He penned a riposte about Waste Management in 1992 — for which they attacked him — only to have the SEC side with him (ten years later) when it was apparent that fraud had indeed occurred.
His last essay (in 2011) was one on hospital chain HCA (which had a track record already). Yet he never became cynical: when Enron and accounting giant Arthur Andersen collapsed together, Floyd Norris said that Briloff was saddened that Arthur Andersen’s former chief Leonard Spacek (whom Briloff admired) was still alive to see his firm’s culture change lead to its demise.
When Baruch College honored Briloff in 2012 on his 95th birthday, one of the speakers was …. Harry Belafonte. Abe Briloff’s private practice often served many not-for-profit groups, and Belafonte asked him in 1965 for advice on a charitable gift: a pair of nannies to look after Dr. King’s children (as they were constantly on the road). But there was a hitch:
However, Belafonte had one added stipulation. He wanted the cost of the nannies to be deductible from the taxes of his businesses. Briloff then asked Belafonte on what basis did he think this would be accomplished. Belafonte replied that everyone was doing it, and who would know? Briloff agreed that Belafonte was probably right. Everyone might be doing this and, most likely, no one would find out. But, Briloff then asked:
“Supposing, Harry, through a weird convergence of factors, it were to be found out. You and I, Harry, might be willing to take the risk of being found out, but would Dr. King be prepared to take the risk?”
Belafonte’s agreeing not to pursue that helped enormously when — two years later — the Johnson administration ordered an investigation into Dr. King following his opposition to the Vietnam War. And in addition to the FBI, the IRS carefully audited both Belafonte’s and King’s tax returns … to futility.
At the end of his life, he was working on what could be done about student loans, which he saw as hobbling a generation of college graduates. He was an emeritus professor at Baruch College in New York, a school that gets hard-working students without a lot of family money.
Abe Briloff died in December, 2013 at the age of ninety-six. He was posthumously inducted (how-in-the-world did it take so long?) into the Accounting Hall of Fame:
"For over half a century, he was the conscience of the accounting profession, challenging it to raise standards and to meet its obligations to society. Always motivated by the best interests of the accounting profession, he was respected by both supporters and targets of his criticism."
Abe Briloff (1960’s or 70’s) At 90th birthday (in 2007)Let’s close with a tune that is … not about counting money, but is still one of John Mayall’s most sophisticated blues tunes.
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Alas …. nothing from the field this day.
And from Ed Tracey, your faithful correspondent this evening ........
In the diary by my fellow Top Commenteer, Puddytat — on a bad day for the GOP in Wisconsin — trubluedude uses some physics to describe the joy.As the rock and roll DJ’s would say …. Top Photos: “They’re baaaaccckkk!”
And lastly: yesterday's Top Mojo - mega-mojo to the intrepid mik ...... who rescued this feature from oblivion:
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