Companies, if granted the leeway, will surely present their financial results in the best possible light. Regulations still require corporations to report their financial results under accounting rules. But companies often steer investors instead to massaged calculations that produce a better outcome. And of course they will try to persuade investors that the calculations they prefer, in which certain costs are excluded, best represent the reality in their operations. Call it accentuating the positive, accounting-style. What’s surprising, though, is how willing regulators have been to allow the proliferation of phony-baloney financial reports and how keenly investors have embraced them. As a result, major public companies reporting results that are not based on generally accepted accounting principles, or GAAP, has grown from a modest problem into a mammoth one.
At www.nytimes.com
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