FTX Lesson No. 1: Don't Fall Asleep in Accounting Class

tech.hindustantimes.com:

Investigations are underway into the stunning collapse of FTX and its sister company, Alameda Research. FTX-related case studies will be taught in business schools for years to come. Out of the tangled mess, one lesson already has become clear: The lack of a serious accounting system or even basic internal controls contributed to the company's downfall.

As professors of accounting, it's a continual challenge convincing students that our courses are important when they're tempted by sexier-sounding classes with titles that include words like “innovation,” “artificial intelligence” or “fintech.” “Introduction to Financial Accounting” doesn't pique the interest of the typical 20-year-old.

The FTX debacle has given us our best argument yet. It enshrines all the reasons a solid accounting system and well-structured internal controls are critical to a business and its investors, creditors, customers, suppliers and other stakeholders.

Internal controls are the checks and balances a company puts in place to protect its assets, maintain integrity in its financial accounting systems and reporting processes, and to ensure compliance with company policies and applicable laws and regulations. Publicly listed US companies need to have their internal controls reviewed by an independent auditor to ensure they're doing the job. In addition, certain US financial institutions that maintain custody of customer assets must attest to their internal controls. If FTX had implemented such controls even at a minimal level, many of the company's deficiencies would have become known sooner and the large-scale meltdown might have been prevented.

FTX's bankruptcy filing indicates that it had no in-house accounting department and failed to take