Management & Accounting Ethics
21 June 2002
The purpose of accounting reports is to provide
management and investors with accurate and timely information on the financial
status of their company.
Sometimes, management uses accounting to hide
problems. They change consignment sales to normal sales, use
inter-company transactions to boost sales, under estimate royalty
exposure, capitalize expenses which should be expensed or classify
personal expenses as company expenses.
This approach not only violate accounting standards
but also hides the true problem from scrutiny. It does not solve the
root cause of the problem. It allows the problem to grow, often
times to a point where the survival of the company is threatened.
That said, the persons that normally have to face the
consequences of misleading financial reports are the investors.
We strongly recommend that investors who provide the
primary financing for a company engage an independent CPA firm to audit
the books of the company and review their accounting proceedures.
The CPA firm should report directly to the investors board.
Usually when we encounter a problem it derives from a
CEO working with a weak willed controller / business manager who
present the investors with a false picture of the firm's true state
of affairs.
Investors should not CPA firms that
have relationship with the management of the
publishing company being audited.
In the New York metropolitan area we have worked with
several CPA firms and strongly recommend;
Ernst & Young
Marks, Paneth & Shron, LLP
600 3rd Avenue, New York, NY 10016
(212) 503-8800
Richard
A. Eisner & Company, LLP
750 Third Avenue, New York, NY 10017
(212) 949-8700
In our opinion, these
firms have the financial independence to tell the board
when management is not fairly presenting the results of operations.
Tips for Publishers is a weekly
column authored by Edwin Fager. If you have any suggestions for
future articles please email tips@kensai.net
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