The Numbers Game Companies use every trick to pump earnings and fool investors.
The latest abuse: "Pro forma" reporting
MAY 14, 2001
`It is simply a matter of creative accounting," says
Matthew Broderick, playing bean counter Leopold
Bloom in the hit musical The Producers. "Under the
right circumstances, a producer could make more
money with a flop than he could with a hit." Max
Bialystock, Bloom's client, immediately sees the
potential for solving his money woes. He raises as
much as he can from rich widows to finance a new
Broadway musical, Springtime for Hitler. He
blows the money on himself, intending for the show
to bomb so that nobody will ask awkward
questions.
For all the hoopla on the Great White Way, Bloom
is a primitive in the numbers game. He's operating
without pro forma accounting, which allows all kinds
of fictions in the way companies present their
earnings. In the great bull market of the 1990s,
companies and their CEOs used aggressive tricks to deliver the continually
rising sales and earnings that Wall Street wanted to see. It's gotten far worse in
the market slump. The pricking of the Wall Street bubble has stepped up
pressure on desperate CEOs to shore up earnings ravaged by the sudden
economic slowdown. Whether it's boom time or bust, companies have cast
aside constraints on how they report sales and earnings to the public. They are
dodging accounting rules built up over decades, choosing instead a slew of
unconventional and often questionable practices that would turn Bloom green
with envy."
Excert from the article, " The Numbers Game
Companies use every trick to pump earnings and fool investors. The latest
abuse: "Pro forma" reporting ."
Business Week
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