Nice writeup on my Forbes piece by GMI Ratings.
For more go to the report.
Bogus Accounting Hides Real Risks
By James A. Kaplan and Lev Janashvili
“In the long run managements stressing accounting appearance over economic substance usually achieve little of either.” ― Warren Buffett
In the current issue of Forbes magazine, Francine McKenna’s thoughtful article (Lying with Numbers) provides a timely reminder that bogus accounting remains a widespread practice at public companies. Enabled in part by perennially resource-constrained regulators, aggressive accounting continues to distort underlying economic realities, often through perfectly legal and clever exploitations of accounting standards. Given the latest data on the incidence of earnings manipulation, McKenna raises the inescapable question: “Is another Enron brewing?”
In this context, McKenna briefly mentions recent research on earnings quality. This paper by a team of academics from Duke and Emory warrants a closer look because it paints a stark picture of the scope and severity of the problem based on the opinions of people who understand the problem well.
A very nice mention of the article by Kevin LaCroix at D & O Diary.
…McKenna’s article looks at whether the reduced accounting fraud enforcement activity in recent years is the result of decreased fraud or a reduced emphasis on the issue from the regulatory agency.In a concluding section that will be of interest to readers of this blog, McKenna’s article closes with a seven-point checklist to use to test for accounting risk at any particular company.
Check out Francine McKenna’s interesting piece in Forbes entitled “Is The SEC’s Ponzi Crusade Enabling Companies To Cook The Books, Enron-Style?“
The poster child for the situation could be SucessFactors, a cloud-based app company bought by SAP in February. The company was accused of misleading accounting procedures last year by a whistleblower who reported his misgivings to authorities, Francine McKenna of Forbes writes.
This wasn’t the first time the red flag was raised over SuccessFactors’s accounting. ZDNet’s Dennis Howlett had also documented weirdness in how SuccessFactors reported revenue to investors via SEC filings
…McKenna’s article looks at whether the reduced accounting fraud enforcement activity in recent years is the result of decreased fraud or a reduced emphasis on the issue from the regulatory agency.
The new feature article for Forbes magazine is called “Lying With Numbers”. It was on newsstands October 22 through November 5.
The article is also posted on my blog at Forbes.com.
The SEC is busy chasing Ponzi schemers and foreign bribers. But bogus accounting remains a bigger danger to the markets. Is another Enron brewing?
There’s some new insight into the ongoing accounting issues at Green Mountain Coffee Roasters. There’s also an account of a whistleblower’s complaint to the SEC about potential fraud at SAP via its recent HR cloud computing acquisition SuccessFactors.
If you like what I’m doing under the Forbes Investigations banner, please let them know. I’ve got two more features planned and hope to do more.
Main page art is Andy Warhol’s Dollar Sign, once owned by supermodel and Mick Jagger ex Jerry Hall.