My academic career predates the "sky is falling" period that beganin the fall of 2008. I find myself wondering how to reconcile theevents in that short span of time to the common body of knowledgepreviously embraced. In particular, I am increasingly curious as to howthose responsible for filing, auditing, exercising oversight andinvesting in today's market setting answer a small set of queries.

* Controls. Boards of directors are intended as a checkand balance on strategic operating decisions and leadership. Yet, ifsuch control is ignored and overridden by government action, then howcan it be said to be intact? Sarbanes-Oxley mandated certain reports oncontrol and certifications by public company officials. What would yousay in these circumstances is the state of control?

* Contracts. Arm's-length transactions evidenced bycontracts have been the core means of describing and enforcing propertyrights. Yet, if contracts are initiated under duress exerted bygovernment, abrogated through legislation or regulators' actions, oroverridden by government expropriation, then what rights lie with thosewho hold legal instruments?

* Capital. Traditional forms of capital have been debt andequity, with certain hybrid instruments and sweeteners observed in themarketplace. Valuation reflects both risk and expectations, combinedwith the enforceability of promises exchanged. Traditionally, decisionsto issue stock or debt have been evaluated by stakeholders, overseen bydirectors, and monitored by regulators. Yet, if government can forcedebt onto private sector entities, extract ownership rights, andcontinually advertise nationalization as an option, how can capitalmarkets be operable?

* Communication. Full disclosure has been a mantra,leading to hundreds of pages of 10-K filings, describing events thatare planned, have happened, or have been canceled. Formal contracts areincreasingly attached onto the filings, permitting transparency.Deadlines for notification of trading practices and key events aremonitored.

Yet, more recently, the term "systemic risk" has beeninvoked to excuse no communication to stakeholders or directors, nolead time for clear articulation, reading or deliberations,behind-closed-door meetings, votes on nontransparent legislation, andvagaries that morph into backdated requirements. Why is communicationin a reasonable time frame for oversight by those affected notdemanded?

* Cost. The notion of cost incurred has been a keyingredient to computing profitability, asset basis, and obligationstied to the passage of time. The information age is applauded forproviding a means for monitoring not merely cost of acquisition butmultiple dimensions of fair value and replacement cost. Yet, when thegovernment led the way to displace actual exchange with possibleexchange, the reliability and verifiability dimensions of good businesswere undermined considerably. Why is profit reported on a notion ofcost other than that which a given entity has actually incurred?

* Chaos. The claimed role of fair value and exuberance inexplaining price-earnings ratios from just above zero toone-hundred-fold is part of the chaos story. However, rationalexpectations cause one to pause and ask some obvious questions. Whywould a company trade below its real book value? How could volatilityclimb from a historical norm of 20 percent to 75 percent so quickly? Towhat extent does anyone accord attention to the volume of trading andits respective volatility? Do people understand that stock marketquotes reflect those who have chosen to trade in periods of chaos? Arethose indicative of the values existing among those not prone to tradein such time frames?

CURIOUS

The very idea that anyone represents the "sky is falling"era as a reflection of the free market is most curious. The uncertaintyof government actions and the question mark surrounding property rightshave created a calamity. The best answers to this series of unfortunateevents are to return to that common body of knowledge that served thecountry well from its genesis.

Wanda A. Wallace, Ph.D, is the John N. Dalton Professor ofBusiness Emerita at the College of William and Mary. She has served onFASB's Financial Accounting Standards Advisory Council and theComptroller General's Government Auditing Standards Advisory Council.

(c) 2009 Accounting Today and SourceMedia, Inc. All Rights Reserved.

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