Business: COOKING THE BOOKS TO FATTEN PROFITS

Things are seldom what they seem. Skim milk masquerades as cream; High lows pass as patent leathers; Jackdaws strut in peacock feathers.

LITTLE Buttercup's wry observation in Gilbert and Sullivan's Pinafore applies with prophetic accuracy to much of today's corporate enterprise. There are dozens of legal ways in which companies can juggle their books to inflate profits. The most common objectives are to camouflage a poor earnings performance, to help lift the price of common stock, and to promote—or fend off—mergers. Many conglomerate corporations owe their recent ascendancy at least in part to...

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