Tuesday, August 02, 2005

Oh the games accountants play now, every possible single day now...

Ellen Simon of ABC News revisits and updates typically legal but ethically dubious accounting methods used by some businesses to make financial statements more appealing to investors. Restatements, known as "the big bath", have been around for a while, but compliance with Sarbanes-Oxley requirements have increased the popularity of this device (preferably done through extraordinary items or changes in accounting principle to leave operating income unchanged) as a way to meet requirements while minimizing loss of investor appeal. "Cookie jar accounting" essentially salts away part of an unusually good period as insurance against less satisfactory future periods. Probably the least ethical of the three procedures, channel surfing, involves generous return policies to increase sales. This can mislead an investor as to a company's growth.


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