In this brief video clip, listen to CPA/CFP Eric Wikstrom relate his experience from dealing with financial statements from large corporations during his auditing years, including during his employment at Arthur Andersen before it went down with Enron.
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Eric very politely touches on the issue of large corporations facing a difficult task in producing accurate financial statements. The unreliability of financial statements expands much further when we also consider the many outright scandals we’ve all seen in the news. Enron, Tyco, WorldCom, and that breed of scandals. Then there’s the Freddie Mac accounting scandal that misreported income several years in a row by up for $4 billion. Fannie Mae had its own debacle where $200 million of losses were shifted in order for top officers to receive their tens of millions of dollars in performance bonuses.
To me the message is clear: the system is flawed. The stock market is promoted as the investment market… but the time-tested value of real assets can’t be ignored, and we all must face the fact that we have absolutely no logical reason to confidently feel that our holdings in the stock market are not exposed to problems similar to those mentioned above. I think it’s silly to play the hoping game when hard assets offer predictable, sometimes even controllable profit performance.