Key Point

The prospect that many large corporations may, in fact, be worthless due to unrecorded liabilities is very troubling. But that does not mean the problem should be ignored. The real fix is to reform accounting standards so that everything—even the bad news—is made completely transparent.

The many problems of unreliable reporting, inaccurate accounting, and overly flexible GAAP rules make fundamental analysis far more complex than many people believe. The accounting industry has not taken a lead role in reforming its inadequate system, so every investor needs to consider alternatives to dependence on audited financial statements. The next chapter offers one solution: using confirmation, an idea introduced within the Dow Theory, to test trends and to determine if companies are providing you with accurate information.

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