I ONCE LOCKED the keys in my car while visiting in a small New England town, hundreds of miles away from the spare set. So I did what Americans in small towns normally do in this situation - I called the cops and asked them if they'd come and pry it open with one of their jemmy sticks. A friendly officer offered his sympathy but said he could not help me because the year before while giving a hand to another lady in the same boat, he had been accused of scratching the paint. She had sued, and the station ordered all officers never to provide such assistance again. I remember wanting to track this woman down and wring her neck, no matter how much it cost me. There are few corners of American life that escape the influence of litigiousness gone mad and that includes the recent scandals on Wall Street. Much of the disingenuous book-keeping practices that have emerged since Enron's collapse last December would have been harder to justify under the London-based International Accounting Standards (IAS). The United States' set of standards, the Generally Accepted Accounting Principles (GAAP), has been described as a rules-based system while its philosophical rival, the IAS, is principles based. For the rules-based system, we have lawsuit madness to blame. With a principle-based system decisions about accounting treatment are more often left to the judgment of the company. With GAAP the lines are more clearly drawn so the company is spared a judgment call. Which in the US means they may be spared a lawsuit. Let us take an example - the question as to whether a special purpose entity (SPE) should be consolidated into the balance sheet. Enron was able to shovel lots of debts off the balance sheet by putting them in SPEs as long as 3 per cent of the SPE was held by an outside party. That is because the GAAP rule on when to consolidate is very clear - 3 per cent. No one can sue Enron over that one. Under IAS, company owners have to decide for themselves whether or not they essentially control the SPE. If they do, it must be consolidated. One can see the principle based system would have worked best in this case. Enron was creating these vehicles only to hide debt; they could not in essence pretend they were not controlling them under IAS. Under the US system they had a clear line - 3 per cent. The thinking process is transparent: 'Put 3 per cent of the company into somebody else's hands and we're home free!' An accounting system like this undermines corporate integrity because it tells company managers: 'You don't have to think about it, let the rules make the decision.' And if you don't have to think, you don't have to be personally responsible. There are countless other areas where the US system has allowed companies to free their balance sheet of debt by doing the limbo under a GAAP percentage line. 'Once you start setting up precise right lines there are people that are looking to just cross the line or barely not cross lines,' said Paul Pacter, a director of Deloitte Touche Tohmatsu who has worked with boards of both IAS and GAAP. If the lawyers are to blame, they may be coming to the rescue. In the accounting reform legislation passed in the US Congress late last month the US Securities and Exchange Commission is required to study adoption of a principles-based accounting system. Just as well because at the end of the day, it looks like the rules-based system is not doing much to save companies like Enron from lawsuits. Jake van der Kamp is on holiday. cathyholcombe@scmp.com