For an exciting career, try accounting!

• Author: Cangemi, Michael P.

Among the most significant recent headlines dealing with financial issues, you will find the subprime/credit crisis and the trading losses at French bank Societe Generale. While neither of these problems were caused by accountants, the accounting profession is right in the middle of the ruckus.

When lower housing prices began to put a strain on sub-prime mortgage-backed financial instruments, banks were forced to begin writing down the value of the underlying securities. For guidance, they looked to the recently issued (and actually not yet required) FAS 157. This FASB pronouncement, years in the works, utilizes a fair value principle for valuing financial instruments.

Beyond that, it lays out disclosure requirements based on the valuation methodology utilized. Level 1 is for financial instruments with readily available market valuations, and Levels 2 and 3 are for securities for which there is not as active a market, and therefore, relate to how fair value is calculated. In fact, Level 3 securities include distressed debt, "exotic" derivatives and illiquid mortgage-backed securities--the very instruments at the heart of the subprime crisis.

I remember vividly watching a bank's earnings being reported on cable television, where the commentator said preliminarily that the bank had a write down of X billion dollars; however, they were still analyzing the FAS 157 disclosure. This example puts accountants right in the middle of the subprime valuation process. The importance of the additional disclosure demonstrates the value of the accounting standards process. Score one for the FASB!

The major overseas financial scandal was the disclosure this winter of a large trading loss and possible fraud at Societe Generale, a major French bank. The Wall Street Journal ran a story discussing the "breakdown in internal controls." If the European Union had Sarbanes-Oxley Section 404-type internal control rules, would this debacle still have occurred? Once again, accountants who are in the middle of the design and implementation of financial controls are key players in what is apparently the largest trading loss ever recorded.

Is it an interesting time to be an accountant? It has occurred to me, during my tenure as President and CEO of FEI, that this question may have been asked in a few previous periods in recent years. The period leading up to and after the passage of Sarbanes-Oxley would have to be considered extraordinarily exciting years for...