The Hindu Business Line : Investors' plight

INVESTORS of the world, unite! For you have nothing to lose but your nest-eggs! This may well be the motto for those who are beating their breasts, having been ruined by the slimy and sleazy operators, accountants and stock analysts exposed in recent reports of shady shenanigans within the corridors and executive suites of the likes of Enron. The shadowy world of corporate finances in the US has, of late, been keeping everybody in a state of morbid fright.

However, out of evil cometh good, as the saying goes. The grisly sight of investors burning their fingers on the one hand, and the captains of industry and denizens of accounting firms in the Big League licking their chops on the other has led to a heightened and healthy scepticism about taking anybody's word for granted any more — even the solemnly worded declarations of top auditors certifying the accuracy and authenticity of business transactions and financial results. It now seems that even Enron is not the end of Arthur Anderson's woes. The case of Global Crossing which has recently surfaced seems to put yet another nail in the coffin of professional rectitude. This telecom company paid Anderson more than $ 2.5 million in audit fees in 2000, but coughed up six times that amount for non-audit, consultancy and referral assignments undertaken by the audit firm on its behalf. The fact that Global Crossing is also bankrupt has further blackened the Anderson name.

The series of instances of financial finagling in quick succession implicating the big and seemingly inviolable corporate entities in manipulative and fraudulent deals have begun casting a pall of suspicion over the systems, standards, procedures and criteria governing corporate accounting. Internet surfers are nowadays being regaled with copious and caustic outpourings from website visitors on message boards, giving vent to their soothsaying propensities on which companies in the US are in the line to go belly up with a collusive heave from their auditors. A tally has in fact been drawn up by the chatterati of chat rooms and bulletin boards, with the banner: "Lets keep a close eye on these CEOs before they take all the money and run!" These noetic netizens in constant cerebral fermentation have also hit upon some early warning signals portending massive swindles in the making within corporates: History of generous political donations: convoluted business models; shifting assets from place to place with no discernible end product; and obfuscatory financial statements. For good measure, they include with their tongues in the cheek the following red flags as well: Unfailingly positive coverage from Wall Street analysts and the legerdemain of a well-established accounting firm such as Arthur Anderson as their auditor!

B. S. Raghavan

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