Although I have referred to internal audit, the key point is that strong internal controls, sound corporate governance, and effective disclosure practices require that periodic assessments of overall effectiveness be performed by an independent group. Then, as corporate disclosure practices evolve, market analysts must do their part to understand the information, while recognizing both its value and its limitations.
Analysts need to make sure they are correctly using all available information. This includes understanding that some accounting practices may not result in the best presentation of economic reality and that other sources of information may provide more-accurate insight into a company’s condition.