Study Shines Light on Earnings Statements

Gaming a financial statement to meet earnings expectations has its own colorful nomenclature: cookie-jar accounting, channel stuffing and "the big bath." If a company's earnings meet analyst estimates, the stock gets boosted. If it doesn't, it's busted. But wise investors remember there are many ways a company can prettify its earnings.

A study by independent research firm RateFinancials, based in New York, concluded that nearly 33 percent of Standard & Poor's 500 companies file financial statements that don't accurately reflect their financial condition. Victor Germack, RateFinancials president, wrote about the study under the headline, "How Good are Those Earnings ... Really?"

A series of $1 billion-plus restatements, including HealthSouth Corp., Computer Associates International Inc. and the nation's largest insurer, American International Group Inc., have driven that question home.

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