Some social notes first, and then a discussion on accountants who have gone insane. A couple of weeks ago, I wrote about poor government. In response to two impassioned readers who took me up on the subject, I say this: You must not kill government employees. It might be the right thing to do, but it is illegal to kill people even if they have ruined your lives by their stupidity.

The same, sadly, applies to Microsoft employees, although after last week, I cannot promise not to kill just a few. A computer breakdown forced me to buy a new machine loaded with Vista, the worst commercial product ever made, bar none. The cynicism with which Microsoft destroyed my 14 years' worth of e-mails and accounting records - would not let me use them because they were not produced on Microsoft programmes - makes me want to kill and kill and kill.

But remember: I am a reporter. It is my job to kill people. You must not.

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It is also illegal to kill accountants, more's the pity.

You know that phrase "The lunatics have taken over the asylum?" Well, it has happened in the accounting world. They have made it all but impossible to rely on companies' financial statements. That is something sensible investors do all the time, and now, thanks to the ninnies who set public accounting standards, financial statements are gibberish. You have been warned.

This is esoteric stuff, but it is stuff you need to know. I will try to translate it from the dull and factual to the entertaining and factual.

As you know, the financial world is in an uproar because companies' accounting staff did not do their jobs properly. They put into their companies' books investments they did not understand; made up out of thin air what they thought the investments were worth; and chose not to tell management that they no longer understood the company's finances. Management did not understand them, either. When it all blew up, everyone understood that the accountants and management were chowderheads.

What the accounting people did was to fail in their most basic duty: to state fairly the position the numbers they were reporting. Accountants do little else, so this was a huge failing. Luckily for them, no one assumes that accountants know anything, so they all got off scot-free. Management, which ought to have known better, also got off scot-free. In a culture, where no one takes responsibility, why should anyone be held responsible, the argument runs.

About 30 years ago, accountants decided that it would be a good idea if they got together and wrote policies to cover every possible accounting situation. If the rules were clear, they argued, financial statements would be easier to read and could be relied on to a higher degree. In those 30 years, countless standards have been written. They are still writing them. Many of the standards are hundreds of pages long; all are duller than you can imagine. Just how good these standards are can be seen from what has happened to banks, insurance companies and everyone else in the past couple of years.

The standards are useless because the very idea is useless. There are half a dozen ways to state a simple number such as how much money is in a company's bank account, so think how hard it would be to say how much was in investments, especially with complicated derivative instruments that no one understands. The accountants do not know, and the auditors do not know, either. Yet these bozos produced and certified financial statements under those circumstances, and idiot rating agencies added their imprimatur, although they did not understand either.

Accountants are supervised by professional bodies to which they must belong. These organisations exist, nominally, to protect the profession and the public. In practice, however, they merely look after the interests of their largest accounting firm members and attempt to swell their individual membership by forever lowering standards.

I should exempt the Bermuda Institute from this criticism, since I have no idea what it does, other than harassing me for having a proper accounting qualification. They tried to force me out of business, as best I understand it, because I am overqualified. At's-a some joke, huh, boss?

The reason I mention all this is that just this year, the American accounting standards board took new steps to destroy what little meaning remained in financial statements. Yes, you read that right. This is where it gets technical, but bear with me.

Say a company buys some shares for $800. Say that later, at year-end, the shares are trading at $700. Accounting rules require the company to report the loss of $100 in the value of its investment. Easy and fair. If, at the next year-end, the bond is worth $780, the company can report a profit of $80 (because it wrote down its investment to $700 earlier). And so on.

Now say that a company buys some shares in another company, whose shares are not quoted on a stock exchange.

More companies are private than are publicly traded, so this happens quite often.

Shares in private companies are hard to value, because there is no ready market for them.

The rule has tended to be that they are worth what you paid for them, until newer information comes along.

When the economic system almost collapsed this year because banks had been buying investments without the faintest clue as to their value, the accounting standards people stepped forward and said that all investments must now be "marked to market".

That means that in every balance sheet, assets had to be valued at what they were worth on the date of the balance sheet. Also fair (I have been a little out of touch, so discovering that you could do anything but that came as a shock to me, because anything else is a mix of the stupid and the fraudulent).

Anyway, it seems that banks such as the mighty Goldman Sachs howled when the new rules were introduced, because they would lose money if their assets were fairly valued (!). They somehow persuaded the accounting standards people that if they had to mark their investments to market, they should mark their liabilities to market, too. Say a company has to borrow $1 million and issues bonds for that amount. Say that, at year-end, the market values those liabilities at $750,000. Under the new rules, the company can take a profit of $250,000.

The company still owes $1 million and in most cases that is how much it will have to pay back. Yet the accounting gods have okayed the maddest, least prudent piece of accounting hoo-hah in history. The worse you do, the bigger the profit you can show. It will all end in tears, mark my words.

Just so you know I am not making this up: Ambac Financial Group this week reported that it had lost money in the second quarter. That performance drove down the value of its outstanding guarantees, and the company was able to book a gain of $5.2 billion as a result. The plan at Ambac, I would guess, would be to lose twice as much money next quarter.

I hope I have made this plain. Losses can now be booked as profits, in a move applauded by the people who run the accounting profession. Disaster awaits us all.

Roger Crombie is a Fellow of the Institute of Chartered Accountants in England and Wales, a Member of the Chartered Management Institute and a Fellow of the Institute of Financial Accountants. He was named Best Critical Columnist in this year's Best of Bermuda Awards.