Wednesday, December 21, 2005

Are You Watching Your Numbers?

In the and post-Enron era, one would think stock inflation had been outlawed altogether. But according to the article “Soft Numbers” in The New York Times Don Durfee’s research in CFO magazine tell a different story.

Durfee reports that more than half of chief financial officers say they can legally influence reported earnings by 3 percent or more.

“When presented with various scenarios in which their companies would either beat or miss analyst expectations, a third of respondents said they would try to influence the results,” notes Durfee.

“If your percentage of sales uncollectible could fall anywhere between 2.1 and 2.5 percent with equal likelihood, you might choose 2.1 percent if you wanted to increase your earnings,” says Michael Peters of Villanova University School of Business. Peters helped survey 743 senior finance professionals worldwide, along with Rich Houston of University of Alabama and Jamie Pratt of Indiana University.

Finance chiefs don’t believe many auditors would report any manipulations, even if they caught them. Every company must ultimate make their own decision about ethics policies. But decisions made for short-term gain can have long-term repercussions. Keep that in mind as you work towards building a stronger business.

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