Wednesday July 24, 8:21 PM
AUGUST 14 - ACCOUNTING D-DAY FOR WALL STREET
By Vasu Menon, Chief Editorial finatiQ
On June 28, the US Securities and Exchange Commission (SEC) had ordered the chief executive officers (CEOs) and chief financial officers (CFOs) of nearly 1,000 of the largest US publicly listed companies to certify by August 14 that their recent financial statements are true and accurate.
The move was intended at shoring up investor confidence in corporate America after the recent accounting scandals on Wall Street.
August 14, seen as an accounting D-Day, will probably keep Wall Street's traders on the edge for the next few weeks.
There are concerns that companies whose books are not in order may decide to air their dirty linen ahead of the August 14 deadline. This may add to the volatility on Wall Street and even send stock prices lower in the near term.
But after August 14, investors are hoping that most companies would have rid their closets of the skeletons, setting the stage for fund managers to reassess fundamentals and buy into companies which are not tainted by accounting problems.
There are however sceptics who think that not everything may emerge after August 14. Some crooked CFOs and CEOs may not own up to their misdeeds and it may take a while before these are uncovered. Also as a long-term solution, Wall Street needs to deal with the infectious greed of some CEOs and CFOs, seen as a root cause of the accounting problems in the US.
Even if companies meet the August 14 deadline, not all of them will be out of the woods. This is because the SEC had said last December that it will conduct its own review of the annual reports of all companies in the Fortune 500 stable. The review probably cannot be completed by August 14. According to a report in the Wall Street Journal, the SEC had predicted that a triple digit number of companies could be affected by its review.
The SEC isn't the only one that is forecasting that a large number of US companies may have overstated their earnings. Last week, Fed Chairman, Alan Greenspan, had also predicted that a large number of US companies would restate earnings downward in coming months.
So it doesn't look like Wall Street will out of the woods anytime soon. Those hoping for a quick rebound of US stocks may be disappointed. Any technical rebound in the short term is likely to be short lived. There is a good chance that stock prices will succumb to more profit taking in the months ahead.
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