PracticeConsultingCity pressures to blame for dodgy accounting.

City pressures to blame for dodgy accounting.

One of the issues highlighted by the Auditing Practices Board's warning against 'aggressive earnings management' last week is the increasing pressure company directors are feeling from the City.

The watchdog warned that adverse market reactions when company results fail to meet the market’s expectations are putting directors under pressure to massage their company results.

It is of course reasonable to expect directors, as custodians of public companies, to resist such pressures. But there is a fundamental question that this issue raises – is the City putting too much pressure on companies?

Dodgy accounting is not the only result of the relentless demands for year-on-year growth from analysts and fund managers. Short-term targets mean short-term management, which is not good for investors, companies or UK plc.

And however clever and well-qualified, many of the analysts and fund managers exerting these pressures have never even set foot on a factory floor let alone had any business experience.

Inaccurate accounting is partly a symptom of this wider problem. And it is a tricky problem to solve. But unless the City becomes more realistic in its expectations – and directors start being less slavish to the demands of the market, we will continue to be hit not just by dodgy accounting, but by dodgy management.

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