Current accounting contretemps Anyone who has read my page-long piece, "Sid Cato on annual reports to shareholders," with the subtitle, "You never know what he'll come up with next," knows my position concerning "independent auditors." "A contradiction in terms," I wrote. "Similar to a federal judge and the U.S. Attorney, both paid by the same get-'em-at-all-costs government. Try telling a defendant they're not united against him or her. Same with auditors: Despite the fact that outside directors demand a private briefing with the outside auditors on how the company's doing, the CEO"—viewed (in my experience) under the circumstances as an insider, rather than an outside director—"you can be sure will get a complete update on what the directors asked and what the auditors told them. If you don't think there's pressure brought to bear on the outside auditors, you live in a different world than I do." Fast forward to the current scandal. Make that plural—scandals galore. It seems that every other publication one picks up, additional revelations make headlines—not just Enron and its up close and personal relationship with Chicago-based Andersen, but Walt Disney, Johnson & Johnson, Motorola and PG&E. You name it. There's trouble indeed in River City. Shareholders of those and many, many other companies are proposing to separate the auditors from consulting relationships. If—and that's a big question mark— those proposals eventually get voted on by shareholders, there's no guarantee corporations will heed the initiatives. In fact, experience indicates—and logic dictates—that this will amount of much ado about nothing. ("Let the little people have their day in court; we'll simply ignore their vote. After all, they're nothing more than children; we're the adults, and it's our job to lead them.") Corporations will blithely continue to work hand-in-hand with their accountants on other than auditing matters, thereby insuring the auditors' unquestioned loyalty— and ability to look the other way. The Wall Street Journal reported that "Some institutional investors are calling for companies in which they invest to adopt 'conflict of interest' policies that would prevent their accounting firm from providing anything beyond auditing services." While that's being bandied about, companies continue to adopt an above-it-all attitude toward corporate reporting. Take Amazon.com: Its first-ever quarterly profits made headlines. What didn't (only a look at its annual report disclosed more damning data) is that "It may not have as many liquid assets to cover its obligations as investors think," the Journal reported. In fact, Amazon has negative cash flow. More money went out than came in—and its balance sheet shows $2.15 billion of long-term debt, the newspaper reported. Clearly, it's not all the problem of the companies; given sufficient buzz, investors will bid up even the most-pathetic turkey. Give fly-by-nighters who litter the byways of the Information Superhighway a rumor to tout, and there'll be a million/gazillion suckers out there willing to pony up their hard-earned bucks to a complete stranger. An old adage comes to mind here; it comes from the world of politics. Updated, it says: "Investors get exactly what they deserve." Everyone, from seasoned corporate management to teen boiler-room operators, is intent on making a fast buck. Many would agree that those who throw caution to the proverbial winds deserve to be hoodwinked; that they're asking for it. The White House can talk all it wants about improvements in 401(k) plans to protect the little guy (or gal). I'll believe it—and I'll believe companies will straighten up and fly right, and that auditing firms henceforth won't offer anything save auditing services, and won't look the other way at corporate deception—when hell freezes over. Sorry to be so cynical, but changes (if any) will be infinitesimally tiny, and can't come too soon. P.S. I last bought stock, nearly two decades ago, through Merrill Lynch. My broker was a friend, honorable, I thought. He called one day to say that, though not approved/recommended by his employer, an oil well in Indiana was on the verge of releasing a gusher of the black liquid. I ponied up the suggested dough. The following day, my-friend-the-broker reported the well came up dry, "So I recommend you sell." That in the trade is called churning—getting sufficient commissions to, say, make the monthly mortgage payment. Moral to the story: "There are no friends among investors." Caveat emptor indeed—let all you buyers out there beware.

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