Accounting :: Accounting Finances Money Essays

Accounting On September 28, 1998, death chair of the U.S. Securities and Exchange Commission Arthur Levitt sounded the call to arms in the fiscal community. Levitt asked for, flying and coordinated action to assure credibility and transparency of financial reporting. Levitts speech emphasized the importance of clear financial reporting to those self-collected at New York University. Reporting which has bowed to the pressures and tricks of shekels management. Levitt specifically addresses vanadium of the most popular tricks used by firms to smooth earnings. Secondly, Levitt outlines an eight character action plan to recover the integrity of financial reporting in the U.S. market place. What are the basic objectives of financial reporting? Generally certain accounting principles provide tuition that identifies, measures, and communicates financial information about sparing entities to reasonably knowledgeable users. Information that is a source of decision reservation for a w ide array of users, most importantly, by investors and creditors. Investors and creditors who are obligated for effective allocation of capital in our economy. If financial reporting be brings wispy and indecipherable, society loses the benefits of effective capital allocation. Nothing illustrates the importance of transparent information better than the pre-1930s era of anything goes accounting. An era that left a chasm of misinformation in the market. A chasm that was a contributing factor to the market collapse of 1929 and the geezerhood of economic depression. An entire society suffered the repercussions of misinformation. Families, and retirees depend on the credibility of financial reporting for their futures and livelihoods. Levitt describes financial reporting as, a bond between the caller-up and the investor which if damaged can have disastrous, long-lasting consequences. Once again, the bond is being tested. Tested by a financial community fixated on consensus earning s estimates. The pressure to achieve consensus estimates has never been so intense. The market demands consistency and punishes those who come up short. Eric Benhamou, former CEO of 3COM Corporation, learned this hard lesson over a few short weeks in 1996. Benhamou and shareholders lost $7 billion in market value when 3COM failed to achieve expectations. The pressures are a tangled vane of expectations, and conflicts of interest which Levitt describes as almost self-perpetuating. With pressures mounting, the answer from U.S. managers has been earnings management with a mix of managed expectations. March of 1997 Fortune magazine reported that for an unprecedented 16 consecutive quarters, more S&P 500 companies have ram down the consensus earnings estimate than missed them.