Reporting; Sarbanes-Oxley effect: caution on guidance.

• Author: Marshall, Jeffrey
• Position: Influence on corporate fraud - Brief Article

The Sarbanes-Oxley Act's impact on corporate fraud--largely the trigger for the 2002 law--is examined in a feature article in this issue. But the Act is apparently having another effect, this on corporate reporting: it is making companies more conservative.

Two of three companies on Standard & Poor's 500 roster have exceeded analysts' per-share expectations consistently since the first quarter of 2004, suggesting companies are extremely conservative in their earnings guidance to analysts and then over-deliver on results. So finds a study by Parson Consulting, a financial consultancy, of earnings-per-share projections and actual earnings results. Nearly one in four S & P 500 companies have beaten analysts' expectations by more than 10 percent in this period, the Parson survey found.

The rising percentage of wide-margin misses on the positive side--to 26.1 percent in the second quarter of 2005 from 20.6 percent in the year-ago third quarter--raises the question of whether companies are building padding into their financial systems to exceed expectations consistently, Parson said.

The study found that the percentage of companies that actually meet earnings...