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Ethics Insight - it would include this gain in the selling...

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Ethics Insight Dennis Galante/Stone/Getty Images. After Enron, increased investor criticism and regulator scrutiny forced many companies to improve the clarity of their financial disclosures. For example, IBM announced that it would begin providing more detail regarding its “Other gains and losses.” It had previously included these items in its selling, general, and administrative expenses, with little disclosure. Disclosing other gains and losses in a separate line item on the income statement will not have any effect on bottom-line income. However, analysts complained that burying these details in the selling, general, and administrative expense line reduced their ability to fully understand how well IBM was performing. For example, previously if IBM sold off one of its buildings at a gain,
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Unformatted text preview: it would include this gain in the selling, general, and administrative expense line item, thus reducing that expense. This made it appear that the company had done a better job of controlling operating expenses than it actually had. Other companies that also recently announced changes to increase the informativeness of their income statements included PepsiCo and General Electric. Why have investors and analysts demanded more accuracy in isolating “Other gains and losses” from operating items? Answer: Greater accuracy in the classification of operating versus nonoperating (“Other gains and losses”) items permits investors and analysts to judge the real operating margin, the results of continuing operations, and management's ability to control operating expenses....
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