and international accounting regimes.ĭespite the raft of reforms, corporate accounting remains murky. Six years later, the financial world collapsed, leading to the adoption of the Dodd-Frank regulations and a global initiative to reconcile differences between U.S. Enron imploded the following month, prompting the passage of the Sarbanes-Oxley regulations in the United States. In the summer of 2001, we published an article in these pages (“Tread Lightly Through These Accounting Minefields”) designed to help shareholders recognize the ways in which executives use corporate financial reporting to manipulate results and misrepresent the true value of their companies. Finally, managers and executives routinely encounter strong incentives to deliberately inject error into financial statements. Second, standard financial metrics intended to enable comparisons between companies may not be the most accurate way to judge the value of any particular company-this is especially the case for innovative firms in fast-moving economies-giving rise to unofficial measures that come with their own problems. First, corporate financial statements necessarily depend on estimates and judgment calls that can be widely off the mark, even when made in good faith.
Unfortunately, that’s not what happens in the real world, for several reasons.
And they could make wise decisions about whether to invest in or acquire a company, thus promoting the efficient allocation of capital. They could rely on the numbers to make intelligent estimates of the magnitude, timing, and uncertainty of future cash flows and to judge whether the resulting estimate of value was fairly represented in the current stock price.
In a perfect world, investors, board members, and executives would have full confidence in companies’ financial statements.
0 kommentar(er)
