Accountable Accounting Reforms Help Investors

Physician's Money Digest, October 2005, Volume 12, Issue 14

Wall Street

Journal

It's no secret that corporate accountinghas been a bit murky (eg, HealthSouth,Enron, WorldCom, etc). Most recently,American International Group has beeninvolved in a case for unethical accountingpractices after reducing its reported profitsby nearly $4 billion over 5 years. Regardlessof who's to blame for the revisedfigures, they can take a toll on physician-investors.Steady reforms are coming outof these high-profile cases. A article reports that starting nextyear, companies that make a voluntarychange in their accounting policies mustrevise past earnings to reflect the impactin each period. Going forward, a $4-billionrevision would be divided among eachyear's inaccuracy. The Financial AccountingStandards Board is trying to align USaccounting standards with those usedabroad (the International AccountingStandards Board already has such a rule)and provide investors with more preciseyear-to-year earnings information, givingthem a more accurate picture of the companiesin which they invest.