Schroders attacks FD ‘spin’

Investors are in an ‘arms race’ with finance directors as they battle to see
past the ‘spin’ deployed in company accounts, according to Patrick McCullagh,
the head of research at FTSE100 fund manager Schroders.

McCullagh has also revealed that Schroders is screening the companies it
researches for ‘imprudent’ accounting policies.

McCullagh made the remarks after writing an article for investors saying that
Schroders was looking closely at major European companies for any signs of
‘aggressive accounting’.

He wrote: ‘Only when the economy begins to contract does the accounting
“spin” become unsustainable, leading to accounting revisions and a collapse in
confidence in the company.’

He said analysis of company cashflows would reveal ‘imprudent’ accounting and
‘signs of corporate malfeasance’.

As well as taking a close look at the relationship between net income growth
and cashflow, Schroders is concerned about more traditional issues such as what
is concealed by the term ‘other current assets’ on the balance sheet, as well as
total asset growth and inventory control.

McCullagh said: ‘As credit analysts we do try to be a little more robust with
FDs because our downside is much more intense.’

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