Friday, October 13, 2006

Buffett Scorns "Accounting Gimmicks"

Berkshire Hathaway CEO Warren Buffett warned senior management to eschew "accounting gimmicks" and to be wary of any technique justified by the phrase "everybody's doing it." Of particular concerns are smaller capitalization firms without resourses for large internal audit staffs and comprehensive internal controls. Todd Wenning of Motley Fool says that small capitalization companies are pressed to grow and may fall into temptation to "cut corners" as demands for profits and market share increase, pointing to Krispy Kreme and Rite Aid as examples. Buffett concludes by reminding senior execs that unacceptable practices may occur from time to time, but that these practices must be stopped as soon as they become known.

Buffett has long been known as a shrewd businessman, but it was interesting to get a glimpse into his ethical philosophy. Certainly, the phrase "everybody's doing it" has "justified" a substantial amount of bad behavior over the course of human history.


Blogger said...

I'd read that Buffett was exhorting ethical behavior to his managers, but I hadn't heard the part about "accounting gimmicks." I doubt any of the companies in hot water right now over their options thought what they were doing was an "accounting gimmick"!

11:41 AM  

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