From Businesweek again:
CORPORATE EARNINGS: WHO CAN
YOU TRUST?
Auditors, analysts, and earnings reports are supposed to help you. Too often
they don't
With financial markets in Tokyo, Seoul, and Moscow imploding, investors are
flocking to the U.S., where they know certain bedrock principles still apply.
Here, companies adhere to universally accepted accounting standards.
Auditors scour the books to keep management honest. Regulators ensure
that ''sunshine'' is applied through regular disclosure. And analysts parse the
numbers on behalf of investors for information that will make them money.
Or at least that's the way the checks and balances are supposed to work. But
lately, questions have begun to be raised about the integrity of the U.S.
financial markets, too. Nothing on the order of what has been happening
overseas, of course, but disturbing questions nonetheless.
The concern is being driven not just by accounting debacles, as witnessed at
Cendant Corp. It's the gnawing sense that companies that should know better
are regularly pushing the limit, accountants are AWOL, and analysts are too
enmeshed with their investment-banking brethren to provide objective advice.
Even investors bear some responsibility: They've been so eager to cash in on
the bull market that they've frequently ignored or optimistically interpreted
restructuring charges, acquisition write-downs, and other accounting ploys
that camouflage what's really going on.
As risk has returned to the system with a vengeance, smart players are
starting to apply more discrimination. Savvy institutional investors are seeking
more independent analysis. Regulators are stepping up the public pressure
on companies and accountants. Companies that shun accounting convention
are being punished in the marketplace. And individual investors, singed by
unpleasant surprises, are starting to educate themselves. Of course, the
pressures that caused these problems to arise in the first place are not going
to disappear quickly. And with markets as volatile as they are, no issue
deserves more attention. BUSINESS WEEK devotes this Cover Story to
examining the depth of the problem, identifying solutions, and educating
investors in self-defense.
By Sarah Bartlett
Glenn |
