Accounting Issues Remain Front And Center

Enron and WorldCom may have faded from the headlines, but accounting issues remain very much on investors’ minds.

Shares of Nortel plunged 28% Wednesday on news that the company fired its CEO and other top officials as part of an ongoing investigation into the company’s accounting problems. Nortel will restate results from 2000 to 2003, and the company also delayed its first-quarter earnings report.

Phil Fisher, who died last month at age 96, wrote 46 years ago in “Common Stocks and Uncommon Profits” that investors should invest only in companies whose management is of “unquestionable integrity.”

As long as there are companies that haven’t gotten that message, we’ll have days like today to remind them.

And while we’re at it, perhaps Wall Street analysts and companies should drop the practice of tracking company performance based on “pro forma” results, in which non-recurring charges (which seem to recur every quarter) are excluded from earnings. Microsoft is the only major company we know of that reports its results solely according to generally accepted accounting principles (GAAP). If GAAP is good enough for Microsoft, it should be good enough for the rest of the market.

The Nasdaq fell 42 to 1989, the S&P 500 lost 15 to 1122, and the Dow tumbled 135 to 10,342. Volume rose to 1.86 billion shares on the NYSE, and 2.04 billion on the Nasdaq. Decliners led 25-7 on the NYSE, and 25-6 on the Nasdaq. Downside volume was 87% on the NYSE, and 87% on the Nasdaq. New highs-new lows were 54-160 on the NYSE, and 67-41 on the Nasdaq.

After the close, QLogic , Drugstore.com and RealNetworks met estimates. Symantec , Openwave , Macromedia , Photon Dynamics , Akamai and S1 beat estimates. InfoSpace and Advanced Fibre missed, and JDS Uniphase and LSI warned.

During the day, Comcast rose after dropping its hostile bid for Disney .

Microstrategy , whose accounting issues led off the great Nasdaq bear market four years ago, rose 2% after beating estimates, while Sonus Networks fell 13% as the company’s own accounting clouds have yet to lift.

Monster Worldwide , Sina.com , Flextronics , Wireless Facilities , Network Associates , RF Micro , Websense , UTStarcom and Avaya all fell on their earnings reports.

Maxim , Webmethods , and Dot Hill gained on their results.

Finally, looking for a reason for eBay’s phenomenal outperformance? Where else can a guy in a wedding dress get 5 million page views and a boatload of cash?

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