Back at the turn of the 21st century, the big accounting scandal was that firms such as Enron were allowed by their accountants to use gimmicks to inflate their profits. There were demands that the accounting profession take a harder line with corporate clients, and federal legislation was adopted to ensure that balance sheets were more realistic.

Now, according to Congressmen Henry Waxman, D-Calif. and Michigan’s Bart Stupak, D-Menominee, the big scandal is that companies are being too pessimistic with their balance sheets in the wake of the adoption of federal health insurance reform. Their stance amounts to political hypocrisy.

The two congressmen have slated a hearing for next week for several corporate executives to explain why they took write-downs following passage of the health care legislation.

The answer is simple: federal accounting rules require firms to immediately recognize such anticipated losses on their balance sheets.

At&T announced a write-down, or noncash charge, of $1 billion in anticipation of costs associated with the health care bill. Deere & Co took a $150 million charge; Caterpillar announced a write-down of $100 million and AK Steel recognized a $31 million loss.

Others have also booked noncash losses. This is because the health care bill ends deductions for federal subsidies for firms that provide prescription-drug coverage for their retirees. When Congress and the Bush administration adopted the drug coverage for seniors, they provided the subsidy and the tax deduction to encourage firms not to dump their retiree costs on to Medicare.

Now Congress has removed the deduction, and the White House and the congressmen are contending they are being blindsided by the company write-downs.

The health care law will save firms money in the long run, they argue, and the change in deductions won’t take place until 2013.

But accounting rules require firms to immediately book costs that affect earnings, and any potential savings from the legislation remain an unknown.

Calling corporate CEOs on the carpet for following the rules and providing honest balance sheets is a bullying tactic designed to quash any suggestion that the Democratic health care bill is less wonderful than Democrats contend.

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