SEC Complains of 'Smoke and Mirrors' Reporting

SEC Commissioner Isaac Hunt, speaking last Friday before the Schools of Accountancy at its annual meeting in Arlington, Virginia, complained that federal regulators continue to see companies engaging in what he called smoke-and-mirror accounting practices that inflate earnings and stock prices.

The SEC "has recently noticed certain worrisome trends relating to the integrity of financial information," stated Mr. Hunt. Citing the volatile swings in the stock market which have increased the pressure on companies to meet past or projected earnings levels, Mr. Hunt described a process of manipulation of numbers on financial reports and the growing use of unaudited financial statements, also known as pro forma statements.

"When such chicanery is discovered, the resulting and inevitable restatements of earnings have caused investors to lose billions of dollars and confidence in the market," Mr. Hunt stated. "Even more disturbing is that pro forma earnings may be materially misleading to reasonable investors, violating the federal securities laws."

The SEC has called for companies to release audited and unaudited statements simultaneously, which would provide investors with an opportunity to make valid comparisons.

You may like these other stories...

There’s a way for investors to brave the world beyond stocks and bonds of a traditional Individual retirement arrangement (IRA) and venture into real estate, tax liens, unregistered securities and so on. Their avenue...
KPMG LLP has agreed to shell out $8.2 million to settle charges from the US Securities and Exchange Commission (SEC), which found that the Big Four firm violated auditor independence rules by providing certain nonaudit...
By Jason Bramwell, Staff WriterJuly 1, 2014, is the date when the first set of municipal advisors will be required to register under new rules the US Securities and Exchange Commission (SEC) finalized last year.The SEC...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.