Monday, January 03, 2005

Fears over new 'fair value' accounts

Guardian: Fears over new 'fair value' accounts:

Talking about new accounting rules that will "Huffing and puffing, though, is part of the game because IFRS is, in the view of accounting firm Ernst & Young, 'the biggest change in financial reporting in a generation'. Opportunistic hedge funds are known to be taking a keen interest, knowing that investors' instinct on seeing unexpectedly poor numbers will be to sell first and ask questions later. "

This suggests that any uncertainty about the economic reality behind accounts causes distortions to the market. It does not appear likely to me. Isn't this what equity analysts are supposed to do - sort the financial wheat from the chaft and find the underlying picture of the firm beneath the announting surface? Individual investors are not likely to be able to complete this task, but the current price should reflect the professional information. This professional information is not likely to be distracted by new accounting rules.

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