Accounting is supposed to hold a mirror up to reflect reality. Financial statements are supposed to show what a company has; what the company owes; what the company sold and what it cost to get that revenue. The people who might want to invest in a company and its future are supposed to be able to look at the financials and be able to rely on the image reflected in them. It ain't that way any more. "Aggressive accounting" is lighting a smudge pot so that the image can be seen only vaguely.

It used to be that when the XYZ WIDGET COMPANY made and sold widgets you could look at the income statement and discover how much money the company took in selling widgets and how much it cost them to make and sell them. No smoke, just a mirror. The executives were paid to make and sell widgets and they were compensated for doing that efficiently. The more money that the company made, the more the executive got paid and the more valuable the shareholder's interest in the company became. When the company lost money there were no raises for the executives and the value of the shareholder's interest declined. Business was, we used to say, a zero-sum game.

Something happened in the 1980s and 90s. More and more executives were compensated by the opportunity to buy company stock at bargain prices - stock options. The theory was that when the executives had a direct stake in the company's profit then they would have a powerful incentive to manage well. It didn't take long for the managers to figure out that their most important product was no longer widgets. It is the price of Exwidg stock. It doesn't matter whether we are making money by making widgets. It only matters if it looks like we are making money. Our most important product is the share price. Enter the aggressive accountant. His job is to make sure that there is enough smoke to cloud the mirrors.

Maverick Republican Peter Fitzgerald of Illinois is trying to blow some of the smoke away. Together with Senators John McCain, Dick Durbin and Carl Levin he has introduced legislation to require companies to report the cost of executive's stock options as a charge against earnings. "This does not reduce earnings", the Senator said, "It reduces what the companies report as earnings.." Boeing and Wynn-Dixie already follow that rule, showing the stock option cost on their income statements. Other companies' executives have vowed to kill the bill. If 14 of the S & P 500 companies had followed the rule they would have shown operating losses instead of inflated earnings.

Mr. Ming says, "I get my bones the old fashioned way and if I can't see them I don't count them."