Over CFRA's 15+ year history, our team has developed and refined a rigorous, in-depth research process designed to identify situations where reported financial results do not provide the true picture of a company's health. CFRA clients leverage our global team of 25 analysts trained to identify deterioration in a company's operational health by uncovering evidence of aggressive accounting, financial manipulation, and fraud. Companies uncovered through our process and added to our Biggest Concerns List have significantly underperformed all relevant benchmarks.
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This educational report analyzes the nature of accounting errors reported by US listed Chinese companies that resulted in material restatements to previously reported EPS or operating cash flows. Most of the restatements in our analysis had a material negative impact on these performance metrics. The most common errors are related to debt/equity instruments (mostly derivatives used in financing arrangements) and related party transactions. We raise concern that disclosure regarding restatements, especially reclassification of cash flows, is inconsistent among these companies and often not transparent.
As 2011 10-K’s are filed, investors should look to new required disclosures related to multiemployer pension plans.