Accounting Ethics 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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