Thank you very much.  Dean Daly, Dean Sexton and to everyone gathered this evening, thank you for welcoming me tonight.  I am honored to be here on such an auspicious evening for both NYU and Bill Allen.
The creation of the Center for Law and Business recognizes an important truth: we cannot continue to view the worlds of business and law as parallel but separate universes.  And NYU could not have selected a more qualified or thoughtful individual than Bill as its first director.  His leadership of the Delaware Court of Chancery -- acknowledged as the nation's most influential arbiter of corporate law -- confirmed his reputation as a great thinker who effortlessly bridges the worlds of law and business.  I've heard from friends on Wall Street that it's a far less stressful experience to hear Bill lecture in front of a classroom than from his former seat on the bench.
Seven months ago, I expressed concerns about selective disclosure.  Through conference calls or embargoed press releases, analysts and institutional investors often hear about material news before it is made public.  In the interval, there is a great deal of unusual trading. The practice had been going on for a long time.  And, while everyone was aware of it, and most were extremely uncomfortable with it, few spoke out.  As the investor's advocate, the SEC did and we will continue to do so.
Well, today, I'd like to talk to you about another widespread, but too little-challenged custom: earnings management.  This process has evolved over the years into what can best be characterized as a game among market participants.  A game that, if not addressed soon, will have adverse consequences for America's financial reporting system.  A game that runs counter to the very principles behind our market's strength and success.
Increasingly, I have become concerned that the motivation to meet Wall Street earnings expectations may be overriding common sense business practices.  Too many corporate managers, auditors, and analysts are participants in a game of nods and winks.  In the zeal to satisfy consensus earnings estimates and project a smooth earnings path, wishful thinking may be winning the day over faithful representation.
As a result, I fear that we are witnessing an erosion in the quality of earnings, and therefore, the quality of financial reporting.  Managing may be giving way to manipulation; Integrity may be losing out to illusion.
Many in corporate America are just as frustrated and concerned about this trend as we, at the SEC, are.  They know how difficult it is to hold the line on good practices when their competitors operate in the gray area between legitimacy and outright fraud.
A gray area where the accounting is being perverted; where managers are cutting corners; and, where earnings reports reflect the desires of management rather than the underlying financial performance of the company.
Tonight, I want to talk about why integrity in financial reporting is under stress and explore five of the more common accounting gimmicks we've been seeing. Finally, I will outline a framework for a financial community response to this situation.
This necessary response involves improving both our accounting and disclosure rules, as well as the oversight and function of outside auditors and board audit committees.  I am also calling upon a broad spectrum of capital market participants, from corporate management to Wall Street analysts to investors, to stand together and re-energize the touchstone of our financial reporting system: transparency and comparability.
This is a financial community problem.  It can't be solved by a government mandate: it demands a financial community response.
THE ROLE OF FINANCIAL REPORTING IN OUR ECONOMY
Today, America's capital markets are the envy of the world. Our efficiency, liquidity and resiliency stand second to none. Our position, no doubt, has benefited from the opportunity and potential of the global economy. At the same time, however, this increasing interconnectedness has made us more susceptible to economic and financial weakness half a world away.
The significance of transparent, timely and reliable financial statements and its importance to investor protection has never been more apparent. The current financial situations in Asia and Russia are stark examples of this new reality. These markets are learning a painful lesson taught many times before: investors panic as a result of unexpected or unquantifiable bad news.
If a company fails to provide meaningful disclosure to investors about where it has been, where it is and where it is going, a damaging pattern ensues.  The bond between shareholders and the company is shaken; investors grow anxious; prices fluctuate for no discernible reasons; and the trust that is the bedrock of our capital markets is severely tested.
THE PRESSURE TO "MAKE YOUR NUMBERS"
While the problem of earnings management is not new, it has swelled in a market that is unforgiving of companies that miss their estimates.  I recently read of one major U.S. company, that failed to meet its so-called "numbers" by one penny, and lost more than six percent of its stock value in one day.
I believe that almost everyone in the financial community shares responsibility for fostering a climate in which earnings management is on the rise and the quality of financial reporting is on the decline. Corporate management isn't operating in a vacuum.  In fact, the different pressures and expectations placed by, and on, various participants in the financial community appear to be almost self-perpetuating.
This is the pattern earnings management creates: companies try to meet or beat Wall Street earnings projections in order to grow market capitalization and increase the value of stock options.  Their ability to do this depends on achieving the earnings expectations of analysts.  And analysts seek constant guidance from companies to frame those expectations. Auditors, who want to retain their clients, are under pressure not to stand in the way.
ACCOUNTING HOCUS-POCUS
Our accounting principles weren't meant to be a straitjacket. Accountants are wise enough to know they cannot anticipate every business structure, or every new and innovative transaction, so they develop principles that allow for flexibility to adapt to changing circumstances. That's why the highest standards of objectivity, integrity and judgment can't be the exception.  They must be the rule.
Flexibility in accounting allows it to keep pace with business innovations.  Abuses such as earnings management occur when people exploit this pliancy. Trickery is employed to obscure actual financial volatility.  This, in turn, masks the true consequences of management's decisions. These practices aren't limited to smaller companies struggling to gain investor interest. It's also happening in companies whose products we know and admire.
So what are these illusions? Five of the more popular ones I want to discuss today are "big bath" restructuring charges, creative acquisition accounting, "cookie jar reserves," "immaterial" misapplications of accounting principles, and the premature recognition of revenue.
"Big Bath" Charges
Let me first deal with "Big Bath" restructuring charges.
Companies remain competitive by regularly assessing the efficiency and profitability of their operations.  Problems arise, however, when we see large charges associated with companies restructuring.  These charges help companies "clean up" their balance sheet -- giving them a so-called "big bath."
Why are companies tempted to overstate these charges?  When earnings take a major hit, the theory goes Wall Street will look beyond a one-time loss and focus only on future earnings.
And if these charges are conservatively estimated with a little extra cushioning, that so-called conservative estimate is miraculously reborn as income when estimates change or future earnings fall short.
When a company decides to restructure, management and employees, investors and creditors, customers and suppliers all want to understand the expected effects.  We need, of course, to ensure that financial reporting provides this information.  But this should not lead to flushing all the associated costs -- and maybe a little extra -- through the financial statements.
Creative Acquisition Accounting
Let me turn now to the second gimmick.
In recent years, whole industries have been remade through consolidations, acquisitions and spin-offs.  Some acquirers, particularly those using stock as an acquisition currency, have used this environment as an opportunity to engage in another form of "creative" accounting.  I call it "merger magic."
I am not talking tonight about the pooling versus purchase problem.  Some companies have no choice but to use purchase accounting -- which can result in lower future earnings.  But that's a result some companies are unwilling to tolerate.
So what do they do?  They classify an ever-growing portion of the acquisition price as "in-process" Research and Development, so -- you guessed it -- the amount can be written off in a "one-time" charge -- removing any future earnings drag. Equally troubling is the creation of large liabilities for future operating expenses to protect future earnings -- all under the mask of an acquisition.
Miscellaneous "Cookie Jar Reserves"
A third illusion played by some companies is using unrealistic assumptions to estimate liabilities for such items as sales returns, loan losses or warranty costs.  In doing so, they stash accruals in cookie jars during the good times and reach into them when needed in the bad times.
I'm reminded of one U.S. company who took a large one-time loss to earnings to reimburse franchisees for equipment. That equipment, however, which included literally the kitchen sink, had yet to be bought.  And, at the same time, they announced that future earnings would grow an impressive 15 percent per year.
"Materiality"
Let me turn now to the fourth gimmick -- the abuse of materiality -- a word that captures the attention of both attorneys and accountants.  Materiality is another way we build flexibility into financial reporting.  Using the logic of diminishing returns, some items may be so insignificant that they are not worth measuring and reporting with exact precision.
But some companies misuse the concept of materiality. They intentionally record errors within a defined percentage ceiling. They then try to excuse that fib by arguing that the effect on the bottom line is too small to matter.  If that's the case, why do they work so hard to create these errors?  Maybe because the effect can matter, especially if it picks up that last penny of the consensus estimate. When either management or the outside auditors are questioned about these clear violations of GAAP, they answer sheepishly ......."It doesn't matter.  It's immaterial."

谢谢。 daly教务长， sexton教务长和对大家今晚聚集了， 谢谢今晚欢迎我。 我荣幸是这里在这样一个吉利晚上为NYU和比尔・亚伦。
中心的创作法律和事务认可重要真相： 我们不可能继续观看事务和法律世界，因为平行，而是分开的宇宙。 并且NYU比比尔不可能选择了一个合格的或更加周道的个体作为它的第一位主任。他的特拉华大法官法庭的领导 -- 承认作为公司法的国家的最显要的裁决者 -- 证实了他的名誉作为不出力跨接法律和事务世界的一个了不起的思想家。 我从朋友在华尔街听见了它是较不紧张经验听取比尔演讲在一间教室前面比从他的前位子在长凳。
七个月前， 我表达了对有选择性的透露的关心。 通过 电话会议或被禁运的新闻发布， 在它被公开之前，分析员和金融机构投资者经常听说物质新闻。 在间隔时间， 有很多异常的贸易。 实践长期继续。 并且， 当大家知道它时， 并且多数是极端难受的与它， 少量毫无保留地说出了。 作为投资者的提倡者， SEC做了，并且我们将继续如此做。
很好， 今天， 我希望与您谈话关于另一普遍， 但太小挑战风俗： 收入管理。这个过程多年来转变了成什么可能最好被描绘作为赛在市场参加者之中。 赛那， 如果不演讲很快， 将有有害后果为美国的财政报告的系统。 跑与原则相反在我们的市场的力量和成功之后的赛。越来越， 我变得关心不负华尔街收入期望的刺激也许忽略常识商业惯例。 许多公司经理， 审计员， 并且分析员是参加者在点头和挤眼赛。 在满足公众舆论收益预算和射出一个光滑的收入道路的热忱， 异想天开也许赢取天忠实的表示法。
结果， 我恐惧我们目击侵蚀进入收入的质量， 并且， 财政报告的质量。 处理也许让路到操作; 正直也许是丢失的到幻觉。许多在公司美国是正沮丧和关心的对此趋向作为我们， 在SEC， 是。 他们知道多么困难它是拿着线在很好的练习，当他们的竞争者在灰色区域经营在合法和彻底的欺骗之间时。
一个灰色区域会计perverted的地方; 那里经理是切口角落; 并且， 那里收入报告反射管理欲望而不是公司的部下的财政表现。
今晚， 我想要谈论为什么正直在财政报告在重音之下和探索我们看见的五更加共同的会计秘密装置。 终于， 我将概述一个框架为对这个情况的一个财政社区反应。
这个必要的反应介入改进我们的会计和透露规则， 并且外界审计者和委员会审计委员会的失察和作用。 我也要求宽广的范围资本市场参加者， 从公司管理到华尔街分析员对投资者， 一起站立和再加强我们的财政报告的系统试金石：透明度和可比性。
这是一个财政社区问题。 它不可能由政府命令解决： 它要求一个财政社区反应。
财政今天报告的角色在我们的
经济， 美国的资本市场是世界的妒嫉。 我们的效率， 其次流动资产和恢复力立场到无。 我们的位置， 无疑， 受益于全球性经济的机会和潜力。 同时， 然而， 这增长的互联性使我们易受影响经济和财政弱点一半世界去。
意义的透明， 实时性和可靠的财政决算和它的对投资者保护的重要性从未是更加明显的。 当前财政情况在亚洲和俄国是这新的现实的纯然的例子。 这些市场学到以前被教的一个惨痛的教训许多次： 由于意想不到或不合格的坏消息，投资者恐慌。
如果公司不提供意味深长的透露给投资者关于，在哪里它， 那里它，并且它去的地方， 一个残损的样式接着而来。 债券在股东和公司之间被震动; 投资者增长急切; 价格为没有可识别的原因动摇; 并且是我们的资本市场根底的信任严厉地被测试。
压力“做您的数字”
当收入管理的问题不是新的时， 它在是不原谅人的公司错过他们的估计的市场上胀大了。 我最近读了一主要U。S. 公司， 那未能由一个便士会见它所谓的“数字”， 并且丢失超过它的储蓄价值的百分之六在一天。
我相信几乎大家在财政社区共同负担对促进收入管理在上升，并且财政报告质量在衰落的气候的责任。 公司管理在真空不经营。 实际上， 被安置的不同的压力和期望， 并且， 各种各样的参加者在财政社区看上去几乎自已永存
这是一个财政社区问题。 它不可能由政府命令解决： 它要求一个财政社区反应。
财政今天报告的角色在我们的
经济， 美国的资本市场是世界的妒嫉。 我们的效率， 其次流动资产和恢复力立场到无。 我们的位置， 无疑， 受益于全球性经济的机会和潜力。 同时， 然而， 这增长的互联性使我们易受影响经济和财政弱点一半世界去。
意义的透明，实时性和可靠的财政决算和它的对投资者保护的重要性从未是更加明显的。 当前财政情况在亚洲和俄国是这新的现实的纯然的例子。 这些市场学到以前被教的一个惨痛的教训许多次： 由于意想不到或不合格的坏消息，投资者恐慌。