Off Balance Sheet entities and earnings manipulation.

The Enron practice of manipulating earnings through off balance sheet, non-consolidated entities is alive and well.  A cautionary tale on its own, this is also instructive as the scheme was exposed by analyzing information contained in the Footnotes to the financial statements.  Ignoring and not reading the notes is one of the five most common analytical mistakes of financial analysts.

Are stock buybacks evil? These writers at the NYT certainly think so.

This article presents a perspective on the problems with stock buybacks, a short history of the SEC granting an exemption to the stock manipulation prohibitions and a summary of the level of buybacks taking place in the open market.  Pay particular attention to the level of total buybacks and dividends in relation to the earnings of the S&P 500.  If companies, in aggregate, are distributing 100% of their earnings, where are the funds for investment coming from? Debt?

Here is the FT’s perspective on the impact of repatriation on buybacks and capital investment.

Your lying mind. Read this. No pay wall.

This article from The Atlantic is a great summary of various examinations of our biases, how we delude ourselves and provides links to academic and popular explanations of why we are not the rational beings economists and financial theorists assume.  Reflect on how your biases will impact your case study and how to overcome our still rather primitive and irrational minds.

It is tough being BDO or Grant Thornton. The second in the FT series on auditing and accounting.

The big four accounting firms have a 99% market share among the S&P 500 and 98% among the FTSE 350.  There are a lot of problems with this oligopoly for the users of financial reporting.  Here is the second installment of the FT series on auditing and accounting, 

The big flaw: auditing in crisis

This article is the first of five that the FT will be publishing examining the crises in accounting, auditing and among the big 4 accounting firms.  Not a subscriber, preserve you free article viewing for this series.