Moodys: Accounting makes companies' figures hard to assess

Accounting limitations have made it difficult to assess how the recession has affected Europe's largest companies, according to financial analysts Moody's.

Financial reports studied for the first half of 2009 showed a calm and constancy in the cash flow statement and balance sheet, compared to a "stark contrast of carnage in the income statement", according to a report by Moody's Investors Service.

"Balance sheets of non-financial companies are not necessarily good indicators of changes in financial health -- they largely reflect historical costs that tend to be disconnected from the real value of the entity's assets. Cash flow statements are heavily affected by changes in the inventory cycle and management policy. And one-off items, combined with a smattering of accounting anomalies, can easily cloud the income statement," said Trevor Pijper, a Moody's vice president-senior credit officer and author of the report.

Pijper said there was limited consistency in the way the alternative " non-GAAP" performance measures were calculated, but they generally portrayed a more favourable outcome than that computed under IFRS.

Further reading:

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