By: Roberto Ortiz

Roberto Ortiz — Sun, 16 Nov 2008 08:41:09 +0000

It comes to mind that in a court of law the auditors would probably be liable if something went wrong. Indeed they are our only line of defense. They are supposed to ensure GAAP are followed but only as long as following accounting rules and principles don’t distort the fairness of the financial statements, like is the case here. It’s kind of hard to imagine big four accountans would miss this. 1.8 billion in the face of $389 million of Net Income is too much a material amount to assume careful procedures were not applied during the audit even if they were an aggregate. I think this case and many others, together with what has been happening in Wall Street recently will cause the market to require the PCAOB to be more aggressive. Due to the nature of how Net Income is calculated and reported on the financial statements a note should be added referring specifically to the liquidity of that particular amount. Because of it’s complexity the Cash Flow does not receive as much attention from investors as it should. Steps towards making it simpler to understand could be a good aid. Unfortunatelly my solutions are probably way too simplistic. But in the words of Jack Nicholson “At least I tried”. I also think the market has a problem with, financial instruments and accounting rules that are becoming too complex to follow. Leaving too much room for book playing which our markets love but it’s dangerous as we are so painfully learning. I don’t want to engage in the republicans v. democrats eternal economic battle but as is the case here, certainly more regulation is necessary.

Comments on: On Stock Market Valuations, some light to the recurring scandals

By: Roberto Ortiz