Redman: Profit From High-Quality Data

As financial scandal, driven by Enron and Worldcomm, unfolded in the early 2000s, I decided to explore the applicability of my area, data quality, to financial reporting.

From my work as a consultant, I was well aware that the financial services industry, like many others, was bedeviled by poor operational data. I wondered if data quality applied to larger issues as well. My first step was to make sure I understood an income statement, balance sheet and cash flow. I purchased some books and spent an hour every morning reading. But after a month, I was more confused than ever.

I was sorely embarrassed. After all, I am a Ph.D. statistician and have spent half my life working with financial services firms. How could I not understand something as simple as a balance sheet? The first person to whom I admitted my lack of understanding was a Wall Street veteran who responded, "Don't worry, Tom. Eighty percent of Main Street investors don't understand them either." I talked to many others, but matters only grew bleaker. A pitiful few, at best, understood financial statements. Worse, many statements contained such serious errors that they required restatement.

I find the whole situation paradoxical: Despite the critical needs of investors, business leaders, regulators, and the markets themselves for trusted data, the financial community is stunningly tolerant of poor data quality. ...