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Article: Freddie Mac's lies: errors moral and economic.(Accounting Annotations)(Federal Home Loan Mortgage Corp.)
- Article from:
- Accounting Today
- Article date:
- March 15, 2004
- Author:
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One of the fascinating accounting stories of 2003 concerned Freddie Mac's exaggerated earnings.
What made this business concern different from the scores of others that overstated their income figures is that Freddie Mac understated theirs. Executives at Freddie Mac estimated this shrinkage at $5 billion, but in late November, they claimed a $1 billion overstatement in the 2001 earnings, so we may presume that that still provides an underreporting of $4 billion of income. Until they provide another revision, of course.
I have often been asked what is so bad about this understating of earnings. Doesn't it rely on the conservatism principle? There are two ...