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Homework answers / question archive / Name a firm that has recently (within 1 year) reported publicly that it either overstated or understated its earnings or profits
Name a firm that has recently (within 1 year) reported publicly that it either overstated or understated its earnings or profits. (for a recent quarter or annual period). What effects do you think the "over or under stated " earnings (profits) will have on the firm?
In August 2005, H&R Block announced that it had overstated its earnings for 2003 and 2004 by $91.1 million. It stated that it had "insufficient resources" to identify and report complex transactions in its corporate tax accounting.
On 2006-02-23, the company admitted in its quarter results that it had miscalculated its own state income taxes for 2005 and 2004 and that it owed an additional $32 million in back taxes.
The impact of such overstated earnings will be negative to the stock price of any company like H&R block as investors will be skeptical about investing in the company due to poor corporate governance and will perceive such acts by the company as fraud. Stock prices of such companies are bound to dip after such announcements.
source: http://en.wikipedia.org/wiki/H&R_Block
Such announcements will have a prolonged negative effect on the stock price of the company.
