Ask Matt: Can you trust earnings reports?

AP

Q: Can investors trust earnings reports?

A: Ever since Enron, investors have a healthy amount of skepticism when it comes to accounting and profit reports. Accounting has cleaned up, but it’s still not perfect.

There were 846 earnings restatements in 2013, which forced companies to go back and change their numbers due to mistakes and other reasons, says Audit Analytics. That’s less than half the peak restatements in 2006 of 1,849, Audit Analytics says. And the severity of the restatements is also down. Last year, there were 1.6 problems in each restatement, down from the 2.4 problems in each restatement in 2005.

But that’s not to say investors can blindly assume every single earning statement is 100% accurate and won’t be looked at again. Companies have been increasingly been making minor “revision restatements” which aren’t severe enough to undermine faith in past financial statements, but still an issue for investors to be aware of. And some whoppers still exist. The biggest earnings restatement of 2013 was energy firm Quicksilver Resources’ $420 million adjustement, Audit Analytics says. That’s definately material, even though it’s well below the record $6.3 billion restatement by Fannie Mae in 2004.

USA TODAY markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at This email address is being protected from spambots. You need JavaScript enabled to view it. or on Twitter @mattkrantz.