A new survey finds that CFOs wield surprising power over reported earnings.
The next time a competitor reports surprisingly strong earnings, consider this: more than half of CFOs say they can (legally) influence reported earnings by 3 percent or more.
According to a survey of CFO readers, finance executives say they can use "allowable discretion" to boost or lower earnings by a few percentage points. And the methods involved don't require a Ph.D. in finance. Operational levers include such time-honored tactics as delaying operational spending, accelerating order processing, and driving the sales team harder. Accounting steps — which are less common — include changing the timing of an accounting charge and adjusting estimates, both of which can be permissible under GAAP. "If your percentage of sales uncollectible could fall anywhere between 2.1 and 2.5 percent with equal likelihood, you might choose 2.1 percent if you wanted to increase earnings," says Michael Peters of Villanova University School of Business.
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