Washington ? There is an even larger accounting scandal looming than the current Arthur Andersen-Enron Corp. fiasco, and its repercussions are going to shake up the world of publicly held companies and the people who invest in them.

The Enron scandal revolves around the creation of offshore partnerships to conceal losses. While a few other companies may have behaved similarly, it is anything but a widespread practice. What it has managed to do, however, is focus attention on accounting firms such as Arthur Andersen and the practices they employ when auditing publicly held companies.

The most significant cause for concern is the realization that auditing firms are allowed to also act as consulting firms for the companies they audit. In other words, their consulting arm is theoretically advising the companies how to outwit their auditing arm. This fact is the most devastating revelation of all.

Virtually all companies sell their products and services by extending credit to their customers, and these credits are carried on the books as receivables. Any company carrying receivables maintains a reserve for bad accounts. A typical company might show $30 million of receivables, less $3 million for questionable accounts. Another category is the write-off account. These are receivables that have been removed from the books altogether because they are deemed to be uncollectable.

However, because the stock prices of publicly traded companies are dependent upon earnings, those companies’ executives have a vested interest in not writing off anything. The result is that so-called “creative accounting” is often employed to conceal write-offs.

Here is how it works. Company A owes Company B $2 million, but the debt is a year old, even though it was due to be paid 30 days after the merchandise was delivered. Normal accounting practices would require that a reserve for 100 percent of the amount be subtracted from Company B’s balance sheet and earnings. Instead, Company B sells an additional $2 million of product to Company A, and Company A pays $1 million. Company B allocates the $1 million to the old debt and explains to the auditors that it remains a viable receivable because a partial payment has been received.

In fact, nothing has been paid on the old receivables, and Company B is carrying a dead asset on its books. The old receivables will never be paid, and both Company A and Company B know it.

This procedure has reached epidemic proportions, and when the dust settles, corporation after corporation is going to be compelled to restate its earnings. And because stocks typically trade at a multiple of earnings, it is logical to assume that the stock prices of companies that have employed this creative receivables accounting are going to fall.

Further, virtually all of such companies borrow money, and the rates they pay are dependent upon the scores they receive from bond-rating services. Therefore, a company that is forced to take a massive write-down of its receivables may find its net worth so depleted that its bond rating drops as well. After all, it was only after Enron failed to secure additional lending that it had to resort to bankruptcy.

The receivables problem has the potential to dwarf all other financial fiascoes in American history.