The Earnings Wizardry Article - Essay Example

The CFOs however say they are forced to do this if they are to keep their jobs and hence it’s not fully their fault.

When the quarter earnings have been good, the “restructuring changes” excuse is used to hide some of the earnings, and when it is bad, they tap into the reserves to cover the tracks of a bad financial quarter. The tampering is a form of accounting ruse that is done in such a clever and legal way that noticing the difference in economic performance is hard. According to the study, this fiddling is called searing due to the carefulness it’s accorded and the difficulty in detecting it.

He however warns them that it may not be as easy as put in the article and the major key is in the financial talk by the CFOs during the presentation. Some of the tips provided include: observing the cash flow against the earnings, when the cash flow deteriorates but the earnings are high, there is a cause for alarm. The other is an examination of the company’s earnings records and any deviations that may have occurred from those recorded should also raise an alarm among the investors.