There is an unresolved issue of the ‘Two Sets of Books’ Syndrome. With the Enron, Worldcom, Parmalat, etc scandals we seem to have come, once again, full circle: Off-balance sheet transactions, lack of transparency, conflict of interest and fraud all bring into question the reliability of financial statements and the quality of audits. What are the alternatives if one cannot trust audited financial statements?
Excerpt from the discussions: In general financial statements from non-public companies are considered unreliable especially those from developing countries, Latin America and Southern Europe. Credit managers are aware that financial statements can be manipulated and there is little they can do about it.
European credit managers tend to seek protection in credit insurance. Other credit managers indicated the practice to establish a closer rapport with the client to gain better insights about the financial condition of the client and industry benchmarks. Nevertheless there is a limit to personal contacts especially when client portfolio exceeds 25,000 credit cases. No suggestions were forthcoming about alternatives, other than credit insurance.