Part II CBC Video Case

These questions are based on Canadian Broadcasting Corporation videos that accompany the textbook. In addition to whatever in-class use your instructor may have given them, they're available on this website for online viewing. If directed to do so by your instructor, you can answer the discussion questions online and email the results.
     These videos are intended only for students using the 4th Canadian Edition of Fundamentals of Corporate Finance. To view the video, you'll require a password. Refer to page 472 in your textbook and use the first word appearing in the main text column as both 'username' and 'password.' Use of the word is case-sensitive.
     The free RealPlayer plug-in is required in order to view the videos. If needed, the plug-in can be downloaded from Real.

The Auditors
Reading Between the Numbers: The financial statements of Canadian companies are filled with many numbers, but are not as rigorous as one might think. The accounting principles used to produce those statements are so flexible that it is necessary to have outside independent accountants–the auditors–read, evaluate, and interpret them. Even then, the auditor's report is expressing only an opinion and does not guarantee in any way the reality behind the financial statements. The auditor's report merely acknowledges that the preparation of these statements has followed the ubiquitous General Accepted Accounting Principles (GAAP). One can only wonder whether yet another independent professional accountant is needed to audit the auditors. That is, to interpret the auditor's interpretation of the original interpretation offered by the financial statements of the firm. Welcome to the wonderful world of corporate reporting!
     This video segment offers a glimpse into the perils and fallacies awaiting those who read and interpret financial statements. As distorted a reality they might present, the balance sheet, the income statement, and all other statements are needed by investors to form an expectation about the cash flow generated by the company in the future.

Additional Resources:
CICA—The Canadian Institute of Chartered Accountants
Philip Services Corporation

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View The Auditors

1		Al Rosen, a top-notch forensic accountant contends that, "we cannot take a financial statement and believe it as is." Explain why.
2		If financial statements are so misleading, why are financial analysts and investors interested in reading them?
3		Philip Services used creative accounting to turn a $17 million loss into a $54 million profit. Can you think of any reason to do the opposite? What would drive a firm to downplay current earnings, using creative accounting methods?