ISBN: 0-03-031529-8
NEWSWIRE - January 25, 2002
Topic: Financial Statement Analysis
Source: "How to Predict the Next Fiasco in Accounting and Bail Early," by Cassell Bryan-Low and Jeff D. Opdyke, Wall Street Journal, January 24, 2002, page C1; and "After Enron, A Push to Limit Accountants to …Accounting," by Deborah Solomon, Wall Street Journal, January 25, 2002, page C1.
Synopsis of Article: The articles discuss issues related to financial statement analysis, quality of earnings, and the independence of outside auditors. Several red flags that may pop up on financial statements to warn investors of low earnings quality are discussed. One red flag, a possible lack of independence on the part of outside auditors, is discussed in more detail in the second article. The articles provide an opportunity to discuss quality of earnings issues and how they impact financial statement analysis.
Questions and Teaching Note:
- How are financial statements used in the investment evaluation process?
- What are some red flags that should lead to caution when using data from financial statements?
- What is the role of outside auditors? What factors may hamper the independence of outside auditors?
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