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SEC Probes Whether Companies Rounded Up Earnings Per Share

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Jun 22, 2018

On June 22, 2018, the Wall Street Journal published an article on how some companies may have found another way to be “creative” when it comes to reporting their results – and it’s attracted interest from SEC Enforcement.

Here’s an excerpt:

Federal regulators are investigating the case of the missing “4,” exploring the numeral’s conspicuous absence in quarterly reports that could mean companies have improperly rounded up their earnings per share to the next highest cent, according to people familiar with the matter.

Enforcement officials at the Securities and Exchange Commission have sent queries to at least 10 companies, asking the firms to provide information about accounting adjustments that could push their reported earnings per share higher, one person familiar with the matter said.

The queries follow the release of an academic paper that found evidence of companies nudging up earnings results. The academic research found the number “4” appeared at an abnormally low rate in the tenths place of companies’ earnings per share. Reporting that figure as “5” or higher allows a firm to round up its earnings per share another cent. For instance, a company with earnings of 55.4 cents a share would round to 55 cents a share, while a company with earnings of 55.5 cents a share would round to 56 cents.

Review the full article on the Wall Street Journal's website.

Related Topics

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.