SEC Acts to Curb Cash Flow Shenanigans
Inc., June, 2005 by Darren Dahl
An operating cash flow statement has long been considered a reliable barometer of a firm's financial health and less susceptible to creative accounting than its cousins the income statement and the balance sheet. Turns out, that belief is sometimes wrong.
Research out of Georgia Tech's business school has found that a number of prominent companies routinely miscategorize money due from vendors, such as members of their distribution network. Typically, firms record the IOUs as part of their cash flow from investments rather than as reductions to their operating cash flow. Earlier this year, the Securities and Exchange Commission forced seven well-known companies to amend their financials in response to the study.
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