Boston, MA, August 1, 2002— The Enron and WorldCom scandals have radically increased the demand for more disclosure. But according to a new survey conducted by CFO magazine, the pressure to mask true earnings is substantial. “A full 17 percent of respondents admitted that their CEOs had pressured them to misrepresent results at least once in the past five years,” says Julia Homer, editor-in-chief of CFO magazine. “CFOs face enormous pressure to fudge results.”
Some CFOs admit that they succumb to that pressure. Five percent of those surveyed say that they have violated GAAP (generally accepted accounting principles) at least once during the past five years. Furthermore, almost 20 percent of respondents who report pro forma results do not reconcile those results with GAAP. Of the 27 percent of respondents with debt not reflected on the balance sheet, 61 percent use special-purpose entities to achieve that result.
Nonetheless, in the wake of the outcry over the Enron and WorldCom accounting scandals, 59 percent of CFOs surveyed say they have disclosed more information to investors during the past 3 months. Fifty-seven percent plan to disclose more during the next 12 months.
The survey was based on the responses of 141 CFOs of large (more than $1 billion in revenues) public companies. Featured in the August issue of CFO, it is the first of a four-part series documenting finance executives’ response to the recent financial scandals. Follow-up surveys will examine the changing relationship between finance and auditors, the investment banking community, and the audit committee.
CFO is published monthly by CFO Publishing Corp., a division of The Economist Group. With a rate base of 450,000, CFO is the leading business publication for C-level and senior executives. CFOreaches an international audience of corporate leaders with its global group of magazines, including CFO Europe, CFO Asia, and CFO China.