A recent study indicates that analysts may not be misled by restructuring charges and tend to revise their earnings estimate downward after a company announces a restructuring charge. "The Effect of Reporting Restructuring Charges on Analysts' Forecast Revisions and Errors," conducted by professors at Vanderbilt's Owen Graduate School of Management, points to the possibility that the usage of restructuring or "big bath" charges, sometimes intended to obfuscate losses and improve future earnings, may have become well understood by the analyst community. The SEC has repeatedly related its concern over the increasingly common and potentially misleading practice.
The study reports that analysts often revise their forecasts downward after the announcement of restructuring charges, but they may not be adjusting them down far enough. It also notes that many companies do not detail the specifics of restructuring charges. *
The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.
©2006 CPA Journal.
Legal
Notices
Visit the new cpajournal.com.