2.1.8 The disclosure of predictive information

Printer-friendly versionPDF versionCongressional hearings during the malfeasance crisis demonstrated deep skepticism about earnings projections by management. However management is clearly the one that can provide the best predictions of company performance and so the issue should be how to present and constrain this information to avoid spin and self-serving stock manipulation. If managers have stock options or stock holdings that are available in a short period of time they can overstate earnings to create a spike in valuation until results come in. The above supports the argument that a new process and requirements for predictive information must be developed Figure 3 breaks down information relative to its time frame. Future information is there focused on 1) leading indicators and basic relationships and 2) forecasting and models. Consequently the emphasis is both on specific numbers and the structure that is driving these numbers. Figure 3: time frames of reporting