MARKET COMMENT
Private Investors Don't Trust Accounts

By David Kuo (TMFDragon)
November 26, 2002

Private investors are increasingly concerned over the way they are being treated by big businesses. That was the finding from Proshare, the organisation that aims to promote wider share ownership and financial education. Proshare added that if companies continue to ignore the specific needs of retail shareholders then their reputations could be at risk of being blemished. Proshare concluded that investors are no longer prepared to accept the word of corporate executives simply at face value.

Amongst some of the findings by Proshare was increasing cynicism by private investors. This was especially prevalent in relation to the preparation of company accounts. Some 60% of respondents believed that a company's annual report only told investors what they wanted to hear. Furthermore, three in four investors believed that auditors should not be allowed to provide non-audit services.

On a more positive note, Proshare said private investors did not think an "Enron" could happen here in the UK. However Proshare cautioned that the recent uncovering of accounting irregularities could suggest otherwise. It advises companies to communicate openly and honestly by taking active measures to engage with its investors.

In truth, though, the Enron and WorldCom episodes were corporate disasters just waiting to happen in a world where investors had become too complacent. Additionally, company executives were allowed too much freedom to do just exactly as they wished. These managers rode roughshod over the rules than govern corporate activity and betrayed the trust of the investors.

However Proshare said that private investors have not been put off investing in the stock market because of those accounting scandals. Nor have they been adversely affected by the happenings at the likes of Marconi (LSE: MONI), MyTravel (LSE: MT.) or SFI Group (LSE: SUF). If anything, investors are perhaps more aware now that company communications cannot, and should not, be taken at face value.

Recent events have made us all a little shrewder and that will help us become a little better at investing. But at the same time companies can do a whole lot more to help its private investors. That should start with a company report that's written clearly and reflects the true position of a business.

So, Fool, how do you use company reports? Let us know in this poll.

What sort of faith do you have in a company report?

It's fully audited and can be trusted (this is the wrong answer)

Don't trust a word -- it's all spin and no substance

You need to dig around a bit, but the truth is mostly there somewhere

Er... What's a company report?

Vote here