The original Essex Junto was a collection of politicians and businessmen from Essex County, Massachusetts committed to the secession of New England from the United States during the War of 1812. The basis of their dissent was that the policies of the United States had become untethered from reason. Their movement toward secession was ultimately stymied by the conclusion of the war.
The Essex Junto Organization also promotes secession in the cause of rationality. Rather than a secession from the Federal Government, the Organization supports a secession from the Federal Accounting Standards Board (FASB). Generally Accepted Accounting Principles (GAAP), the domain of the FASB, have themselves become untenored from reality. As a result, the Organization is seeking the adoption of a new set of standards which they have termed "Generally Accepted U.S. Accrual Accounting Principles and Practices" (GAUSAAPP). These standards are designed to offer businesses the ability to present books that do not distort their financial conditions.
GAUSAAPP are designed not for some idealized or political purpose but for real-life, day to day business conditions. As a result, they are evolutionary in spirit. The U.S. Accrual Accounting Principles and Practices Standards Board (USAAPPSB) appreciates that most companies follow GAAP and that significant deviations from those principles would result in significant costs to companies considering transitions. Currently, GAUSAAPP differs from GAAP on only two issues:
The Essex Junto Organization acknowledges that most alternatives to Mark to Market Accounting can distort financial conditions; however, the shift to Mark to Market Accounting has created greater distortions. The problem with Mark to Market Accounting is that it ignores the Bid/Ask Spread. The negotiation of an asset during a time of distress will result in the widening of the price spread between which a rational individual will buy that asset and another rational individual will sell that asset. By requiring companies to mark assets to the bid price, GAAP can exacerbate that distress. GAUSAAPP mandate that assets be marked to the mid price rather than to the bid price. This will ameliorate the distress rather than amplifying it.
FAS 123 is perhaps the most pernicious standard ever inflicted on US companies. US companies are built on the notion of sweat equity whereby the efficient and productive use of capital can allow individuals to build significant equity stakes in partnership with the suppliers of that capital. FAS 123 mandates that all such equity be treated as liabilities. As a result, thriving enterprises enter a perverse world. The more money they make, the greater their accounting losses and the more negative their net worths. GAUSAAPP mandate that FAS 123 be summarily ignored.