Perhaps because chief financial officers spend so much time with numbers, they understand just how sub-jective they can be and how open to interpretation. Thus despite alleged financial fraud at Enron Corp. and WorldCom, 74.5 percent of CFOs surveyed in this month’s forum do not believe the U.S. needs to dramatically rethink its regulation of corporate financial disclosure.
Respondents don’t think much of the work of analysts in covering complex financial reports. More than 19 percent of CFOs see analysts as clueless. Just 8.5 percent think them sophisticated.
Only 34.7 percent of CFOs use pro forma results in financial reports. Although pro formas have been widely criticized as a way to snow analysts and confuse investors, 76.6 percent of CFOs believe their use should be permitted. But of these, 2.9 percent dismiss them as a gimmick to hide lousy earnings.
Of the CFOs who would permit the use of pro formas, 73.5 percent see them as a useful complement to standard earnings reports. Nearly 15 percent say that pro forma results can effectively measure the performance of a company that is growing rapidly through acquisitions.
Even among those CFOs who would forbid the use of pro forma results in press statements and to regulators, more than half would permit companies to discuss them in official documents sent exclusively to their own shareholders. But only 45.8 percent of CFOs believe pro forma results should be audited.
Most CFOs say they do not use off-balance-sheet financing. But among the 37 percent who do, none would eschew it. More than 64 percent say they’re not worried by the prospect of more regulatory scrutiny of such activities. But 35.9 percent say they’ll increase the information they provide to investors and regulators about what they do off the books.
Should companies be allowed to issue pro forma results?
Yes 76.6%
No 23.4
If yes, how would you characterize pro forma results?
A useful, alternative way to release earnings information 73.5%
A useful way to measure the performance of a company that is growing rapidly through acquisition 14.7
A useful way to see the operating income of a company that is investing heavily for future revenue 2.9
Confusing to most investors 2.9
Confusing to individual investors 2.9
Mostly a gimmick to hide bad results 2.9
If pro forma results should not be allowed, would you suggest prohibiting all mention of them in official documents sent only to stockholders?
Yes 46.7%
No 53.3
Do you think pro forma statements should be audited?
Yes 45.8%
No 54.2
Do you believe auditors should state in their letter to shareholders whether pro forma statements have, or have not, been audited?
Yes, either way 68.8%
Yes, if they have been audited 6.3
Yes, if they have not been audited 6.3
No 18.8
Do you use pro forma information in your financial reports?
Yes 34.7%
No 65.3
Would you request auditors to certify pro forma results?
Yes 37.2%
No 62.8
Would you ask auditors to refer to the results in their letter to your shareholders?
Yes 36.4%
Yes, if they have certified them 25.0
Yes, if they have not audited them 4.5
No 34.1
Will more careful scrutiny of regulatory filings by Securities and Exchange Commission accountants produce:
A fairer market 34.1%
A bureaucratic nightmare 65.9
Does the U.S. need to dramatically rethink its regulation of corporate disclosure and markets?
Yes 25.5%
No 74.5
In general, how would you characterize financial analysts covering complicated corporate finance issues?
Quite sophisticated 8.5%
A mixed bag 72.3
Clueless 19.1
Do you use off-balance-sheet techniques or instruments for financing?
Yes 37.0%
No 63.0
How will you respond to the increased scrutiny of off-balance-sheet items?
Decrease the use of off-balance-sheet financing 0.0%
Increase disclosure of off-balance-sheet activities 35.9
Continue the same level of use and disclosure 64.1
The results of CFO Forum are based on quarterly surveys of a universe of 1,600 chief financial officers. Because of rounding, responses may not total 100 percent.
