October 11, 2012

Study: CFOs Concede Earnings are ‘Managed’

As noted in this article, this study made the rounds a few months back and caused a stir. Here is the abstract from the study:

We provide new insights into earnings quality from a survey of 169 CFOs of public companies and in-depth interviews of 12 CFOs and two standard setters. Our key findings include (i) high-quality earnings are sustainable and are backed by actual cash flows; they also reflect consistent reporting choices over time and avoid long-term estimates; (ii) about 50% of earnings quality is driven by innate factors; (iii) about 20% of firms manage earnings to misrepresent economic performance, and for such firms 10% of EPS is typically managed; (iv) CFOs believe that earnings manipulation is hard to unravel from the outside but suggest a number of red flags to identify managed earnings; and (v) CFOs disagree with the direction the FASB is headed on a number of issues including the sheer number of promulgated rules, the top-down approach to rule making, the curtailed reporting discretion, the de-emphasis of the matching principle, and the over-emphasis on fair value accounting.

Talk About Overboarded!?!

I don’t know much about hedge funds and their boards, but this NY Times article was stunning as it revealed that quite a few directors serve on as many as 25 boards – and one dude sits on 262 hedge fund boards, per this chart.

Law Firms: Your Deal Data is Being Hacked!

This Bloomberg article entitled “China-Based Hackers Target Law Firms to Get Secret Deal Data” scared the daylights out of me. Check it out!

– Broc Romanek