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Tricky Accounting Still Plagues Business World

Making CFOs accountable for company financial reports has helped...

The way companies engage in financial reporting has come under the scrutiny of government regulators for years, and it seems as if that additional oversight has helped reduce the level of corporate fraud. Yes, there are Ponzi schemes and insider trading, but when was the last time we read about an Enron-sized accounting scandal?

However, Martin Fridson writes in a post for the Forbes blog that while part of that had to do with the passage of the Sarbanes-Oxley Act, its more the scale of the scandals that has dropped, not the incidence of tricky or outright fraudulent accounting.

He notes that a benefit of SOX was that CEOs and CFOs became more accountable for their involvement in financial statements.

"It became harder for CEOs who famously micromanaged every other aspect of their businesses to claim they had no idea how profits were calculated, even though their multi-million-dollar bonuses were tied to those numbers," Fridson recounts.

Now, there are still revelations about fishy accounting, he says, and it is something that investors and auditors will need to be on the lookout for. Even if executives aren't committing as much fraud, he concludes, "they're still willing to test the limits of Generally Accepted Accounting Principles."


Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

There are certainly companies willing to push the limits of accounting rules, and even a few willing to deliberately violate them. We do, however, need to acknowledge two other issues. The notion that there is a clear "right" answer iw wriong, and no set of guidelines can " correct" for that structural fact. There are also areas of existing rules that are so complex as to make problems inevitable, and certain rules are, themselves anywhere from imprecise to misleading when applied as written. The need for arbitrary quarters and years makes the problem worse as reality does mot always follow the calendar.