Y’all, I try so hard to be nice but people like this crop up and really try my patience. It’s kind of funny, but it’s also… not.
We’re fast approaching the 10th anniversary of the Enron fiasco – when investors got a big wake-up call and realized that they’d best start taking a closer look at corporate financial statements.
Really? When will we reach it, I wonder? Because for the rest of the world, it was December 2011.
Anyway, investors know they have to look at financial statements. That’s sort of the definition of an investor isn’t it? One who invests in companies? What do you think, people just throw money at a company because they have a nice office building? If someone does that, it is the investor’s problem, not the company’s.
Since elementary school, most of us have been programmed to trust authority.
Hold on a sec.
As we grew up and ventured out into the world, that old trust program automatically included “authoritative” paperwork, like annual reports and financial statements. Now we know that this trust is not always well placed.
So you never learned critical thinking skills? And I never “automatically” trust anything. If you do – and I believe I see where this fetid, effete argument is going – the consequences of your “programming” (again, I repeat: hahahhahahaahha) are your own stupid fault. Idiot.
Before Enron’s downfall, the average investor never gave much thought to the validity of corporate financial statements.
It was simply accepted that all the big-name auditing firms were doing their jobs. After all, the “Big Eight” – then later reduced to the “Big Four” (PricewaterhouseCoopers, Deloitte and Touche, KPMG, and Ernst and Young) – accounting firms that “independently” examine and certify these financial records, were considered squeaky clean and above reproach.
Lady, you’re an idiot.
But as people watched their life savings in Enron holdings evaporate,they were stunned to discover something else – an auditing firm can serve corporate clients in other capacities, and even share office space.
That isn’t stunning news. In fact, it’s extremely common. I get the feeling this person has not been in public since 1964. And if it is so stunning, why?
When auditing firms increase their own bottom lines by tweaking the numbers of the very clients they audit, they cross the line in a major conflict of interest.
So… are you claiming Arthur Andersen “tweaked” Enron’s numbers? How did it do that? No answer? Oh.
Even after Congress finally passed the Sarbanes-Oxley Act of 2002 – legislation that imposed much stricter guidelines for auditing firms – James R. Doty, the new chairman of the Public Company Accounting Oversight Board, discovered audit failures as recently as 2011. They were of such significance that PCAOB inspectors concluded the auditing firm had failed to support its opinion.
This is clearly a person who believes legislation solves all problems. After all, murder is against the law and clearly nobody has ever been murdered.
All of this uncertainty places the burden of due diligence and scrutiny squarely on the shoulders of investors or their advisers, and further reminds us to pay heed to the old caveat “buyer beware!”
What uncertainty? And yes, I agree that the burden of due diligence is only on the investor. Who did you think should bear that?
An annual report can be a powerful and informative tool to help understand a company’s financial position.
Has anyone ever told you you’re a terrible writer? Because you are. You’re not fleshing out a single idea before jumping randomly to the next half-formed idea.
But to the untrained eye, these documents just appear to be page after page of complex numbers, fluffy text, glossy full-color photos, and the usual upbeat “Message from the CEO.”
Sure, if we’re all five year olds who are “programmed” to trust, sure, that’s maybe what you see. But if my money is going to a company, you can believe I’m watching them like a hawk. And seriously, do you always speak this condescendingly to your audience? “Complex numbers”, “fluffy text”?
Financial statements are expected to be straightforward summaries of what actually takes place in a corporation.
Really, because I thought they were legal documents giving a snapshot of exact credit/debt and cash positions of companies. “Straightforward summaries” of what takes place in a corporation can be included, but financial statements have to show some actual numerals.
But the method of reporting those numbers is anything but straightforward.
So now we’re talking about the method of reportage? What about the “trust”! What about the auditors who office with their clients?! What about… I guess we’re not talking about those things? You’re just randomly spitting up words…. sort of… “fluffy text” maybe?
That’s because auditors and accountants have a variety of choices allowable within the Generally Accepted Accounting Principles. These choices relate to handling of certain transactions, reserves and the timing of recognizing those transactions. This can present a dilemma for the average person who just wants to know what all those numbers mean.
If this person were standing in front of me, you’d have to physically restrain me from slapping her in the face for her stupidity.
Footnotes provide narrative details that go beyond the numbers and help explain the accounting assumptions used in the report. But the footnotes can be highly technical and difficult to understand.
Only if you’re an idiot, like you.
Even if you have done your homework and have a fairly good grasp on reading financial statements, never base investment decisions on a single year of outcomes.
Who does this?
And are you saying Enron investors did? Or do you even know what you’re talking about? I think not.
The most relevant information can be found by reviewing information that’s been reported over several years. The most recent five or even 10 years worth of results can give you a better picture of a company’s financial strength, earnings, and its ability to compete.
Wow, such blazing insight. How come you’re not rich yet with your innovative thinking?
How does one get past the hype and the corporate public relations machine and drill down right to the heart and the meaning behind the math? There are plenty of books on the subject that explain how to read and understand financial statements. But if you don’t want to attempt navigating those waters alone, meet with a trusted financial adviser able to guide you through it.
What the hell did I just read?
Judith McGee is the chairwoman and CEO of McGee Financial Strategies Inc., an independent registered investment adviser. She is a co-branch manager of, and offers securities through, Raymond James Financial Services Inc. in Portland. Contact her at 503-597-2222 or firstname.lastname@example.org.