AC Alert for August 15, 2011 The Shot Heard ‘Round The World!

Aug 18, 2011 12:30 PM ET

AC Alert for August 15, 2011 The Shot Heard ‘Round The World!

It was just after 8:00 pm on Friday August 5th. Most Americans were well on their way to enjoying a summer weekend, one of the last before schools reopen. Wall Street averages had rebounded that day for a modest gain, and investors had tucked away their concerns for the time being to enjoy the weekend.

Then, the ‘other shoe’ dropped: Standard and Poor’s announced that it had downgraded the US credit rating from an "AAA" to "AA+". PR veterans will tell you that Fridays in the summer are the most common time for companies and governments to issue “bad news”. However, in this instance, the news was so unusual that it dominated all the weekend talk shows as well as the Monday media cycle. What followed was the most volatile week in history on Wall Street. Meanwhile an investigation into the timing of the credit rating announcement has commenced.

“While S&P didn't give any public statement about the timing of the move, by the morning of Aug. 5, rumors were rampant on Wall Street that the downgrade would come after the closing bell that day. Major stock indexes, which started higher on a better-than-expected jobs report that morning, were soon in negative territory, with the Dow Jones Industrial average tumbling 240 points before rebounding to close modestly higher. The rumors turned out to be spot-on correct, as the downgrade was announced just after 8 p.m. ET. Now the Securities and Exchange Commission apparently wants to know where those rumors came from and how they spread. The Financial Times reported Friday that the SEC has opened an inquiry, asking S&P to let it know who knew of the downgrade decision before it was announced, as a preliminary look into a possible insider trading inquiry.” (Source: CNN Money)

Think there might be some accounting and accountability issues here? We do!

“Accounting…and…accountability” – these are terms that are clearly linked with a common meaning: “Accounting,” (says Webster’s New Collegiate) is derived from the medieval, “…to tell…” -- as today’s accounting systems are designed to “accurately tell the story” of an organization’s financial condition. The meaning of the term “accountability”: the state of being liable or answerable. Important elements of organizational and individual accountability are based today on the quality of the story told by the accounting practices, policies and procedures of the organization (be it in the corporate, social or public sector).

Equally as important: how the public (think stakeholders and stockholders) judge the story -- Truthful?  Misleading? Accurate?  Incomplete? Full and Fair disclosure? Accounting practices can tell a story about an entire corporate culture!

The editors at AC have long recognized these facts and devote a content section to Accounting / Disclosure / Financial Reporting in our Corporate Governance assemblage of ESG content. The importance of consulting this section of Accountability Central -- especially in the wake of the S&P downgrade announcement – can’t really be over emphasized. Check out these recent articles:

SEC Probes S&P's U.S. Debt Downgrade: Report
(Source: The Street)
The Securities and Exchange Commission has asked Standard & Poor's to disclose who at the ratings agency knew of its decision to downgrade U.S. debt before it was announced on August 5th. The SEC's action is part of a preliminary look into potential insider trading.

Bank of New York Mellon sued by Virginia for alleged pension fund fraud
(Source: Washington Post) The State of
Virginia has sued the Bank of New York Mellon for allegedly defrauding six state and local public pension funds by US$40 million, seeking $120 million in damages and $811 million in civil penalties.

Abu Dhabi Wealth Fund Sued by Madoff Trustee in Bid to Recoup $300 Million
(Source: Bloomberg)
The liquidator for Bernard L. Madoff’s firm has sued the Abu Dhabi Investment Authority (ADIA), seeking to recover US$300 million for victims of the confidence man’s Ponzi scheme.

Who's who on Congress's debt 'super committee?'
(Source: Christian Science Monitor)
This article examines the 12 members who have been selected by Congress to devise a way to cut at least US$1.2 trillion from US spending in coming years.

Geithner to stay on as Obama's Treasury secretary
(Source: USA Today)
US Treasury Secretary Timothy Geithner informed President Obama that he would not resign, as had been rumored, but would stay on as the only remaining member of Obama's original economic team.

This is just a sampling of the information in our Alert.  Go here for the full text of this alert, and more information on Sustainability, and other Accountability related topics.