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Revelations of financial misrepresentations to come
Credit managers must ask themselves whether the Enron Corporation and the WorldCom Inc. bankruptcies are anomaly, or whether they are the tip of the iceberg of the revelations of financial misrepresentations to come. Here are some points to consider:
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These recent cases have demonstrated that independent auditors are not always completely independent - especially when these same auditing firms may do millions of dollars a year in consulting for the same companies they are auditing.
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There are more than 20,000 other publicly traded companies that potentially engaged in some type of financial misrepresentation.
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Based on the testimony already heard, not even the CPA firms themselves and readily identify the difference between financial manipulation and fraud.
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It is critical that the Board of Directors of publicly traded companies become more active in monitoring financial reporting.
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Because many senior executives' bonuses are tied to financial performance, there is a big temptation to look for ways to manipulate the financial results being reported.
The real concern is not about the financial irregularities we know about, but the possibility of more examples of financial manipulation being reported. If this occurs, not only will the stock market suffer but the task of the credit manager will become more complicated since the credit manager must examine the financial condition of the company's publicly traded customers.
Reprinted with permission from the Covering Credit Newsletter 10/08/02 Edition © 2002 All Rights Reserved
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