Up to 20% of companies manipulate their earnings to misrepresent their economic performance, according to a study by professors at Emory and Duke. Compliance Week reports that a majority of the 170 CFOs surveyed by the researchers believe companies manage earnings to influence their stock price or to avoid consequences for senior executives under pressure to hit earnings targets. Two-fifths of CFOs said they believe more than 15% of companies manage their earnings, and more than 99% of CFOs said that at least some companies do.
The Securities and Exchange Commission cracked down on managed earnings in the 1990s. According to the study, the most common indications of the practice are persistent deviations between earnings and cash flow, numbers that vary widely from what similar companies are reporting and large changes in accruals. To improve the quality of reported earnings, the CFOs surveyed suggested that the Financial Accounting Standards Board impose fewer rules and merge U.S. GAAP with international accounting standards.
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