Up to 20% of companies manipulate their earnings to misrepresenttheir economic performance, according to a studyby professors at Emory and Duke. Compliance Week reportsthat a majority of the 170 CFOs surveyed by the researchers believecompanies manage earnings to influence their stock price or toavoid consequences for senior executives under pressure to hitearnings targets. Two-fifths of CFOs said they believe more than15% of companies manage their earnings, and more than 99% of CFOssaid that at least some companies do.

The Securities and Exchange Commission cracked down on managedearnings in the 1990s. According to the study, the most commonindications of the practice are persistent deviations betweenearnings and cash flow, numbers that vary widely from what similarcompanies are reporting and large changes in accruals. To improvethe quality of reported earnings, the CFOs surveyed suggested thatthe Financial Accounting Standards Board impose fewer rules andmerge U.S. GAAP with international accounting standards.

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