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Reader Response and Reader Revolt

It's a holiday, so I'm taking the easy way out by turning over today's column to my readers. But before we get to reader response (including a few really good CPA commentaries), in the name of Independence Day let's start with reader revolt:

First up, this unedited letter from reader Tom Gebing, who views my

Iomega

(IOM)

reporting as nothing short of tabloid journalism at its worst: "I have been following you verbiage on companies for some time now. Some good, but many with shabby reporting. I must say, you have show you true quality as a reporter and your persistence to knock a company is relentless.... Is it possible you have no idea of how to run a business? The move they have made is one of total common sense and should of been done sooner or at least engaged in a licensing agreement. Did you even notice, that in the news release, Naomi admitted they were duplicating IOM's software in violation of copy rights. It is obvious to anyone who has knowledge of business that they are making some solid decisions now. Ones that should help the future growth of the company. As you may know, the key to their profitability is in the disks not the drives. This move on their part eliminates a bad situation with a company that has a history of leaching off others. Something that reporters have a tendency of doing.

"I hope you noticed that CNBC didn't replay your interview at all today (at least that I did not see). Surely they know a story that has substance, one that has been researched and states non-biased information. Sorry, but your comments do not have any of these attributes at all. I guess you old habits of shooting from the hip and pulling comments out of thin air with no factual basis have remained from your days in San Francisco. Please keep in mind, Cramer has brought you into the big league now......Please act the part.

"For the record, I manage over $1.5 million and only have 1,000 shares of IOM in the portfolio. So my critique is not from fear of what you could do to the assets. The 1,000 shares represents zilch to the overall portfolio. Please learn not to get fixated on a company and act like a tabloid reporter, when you could be a responsible one by utilizing the resources available to those who believe in quality reporting."

Gee, Tom, thanks for the advice. It means so much coming from someone like you who manages $1.5 million. Wow. That's sure a lot of money. Must mean you're smart. And, oh, by the way, it's Nomai, and Naomi.

Next up, SmackDaddy, who wasn't happy with a recent report by this column that suggested the sale by

Texas Instruments

(TXN) - Get Report

of its memory chip biz to

Micron Technology

(MU) - Get Report

: "It's a travesty the way you consistently state opinions in your column about subjects (accounting) on which you obviously know very little. You really should get a CPA to review all your articles before you publish them. While you might not necessarily report incorrect facts on a continual basis, you certainly provide insufficient detail for those unfamiliar with accounting to blindly follow along in your thought process.

"By the way, I have nothing against you and do not own stock in any of the companies in which I think you have misstated the facts or mislead readers."

Whew, I was worried there for a minute.

Now let's hear from the accounting types:

From Don: "Your recent article on Sunbeam was spot on the mark. As a former employee of a former Fortune 500 company (no longer in business) I was, on a monthly basis, subjected to the severest form of pressure to meet a 'number'. The pressure reached a crescendo on the quarterly results and, after all of the maneuvers, "reserves" would be conveniently booked or relieved, depending upon the requirements of the analysts. This was all done under the holy sacrament of GAAP and it simply served to distort what would otherwise have been somewhat erratic earnings reports. Using this method earnings were smoothed and eventually bore no resemblance to the actual results.

"Our auditors appeared to be the best that money could buy and the market was very enthused with this company's stock, right up to the end!"

Which is, unfortunately, often the case.

TST Recommends

This from someone whose identity must remain anonymous: "In my six years as a CPA, the one thing that absolutely disgusts me is the lack of independence among accounting firms that provide the annual audits for publicly traded corporations.

"For example, there are a number of mid-sized Midwestern cities where there are maybe three or four multinational accounting firms. Let's say that one of these cities has three Fortune 500 companies and a dozen mid-sized companies. Assume that the three large companies each use one of the large accounting firms and that the rest of the business is pretty equally spread among all of the others.

"If you are the managing partner of Firm A, and you have Corporation A's audit business, you are more likely to be retained for the tax work and the various consulting assignments. After all, you will not be charging the client for all the time it takes to understand the business. In fact, in the tax and consulting fields, you are your client's 'partner'.

"Since the number of other large company's in Firm A's market is very limited, it's not inconceivable that Firm A's revenues from Corporation A may make up 25-30% of total revenues for the office.

"That puts the managing partner in a precarious position if there are serious accounting issues. If the partner takes a strong position against an audit point, he puts his business at risk. Lose that customer by being TOUGH on the client and he loses a significant amount of his income.

"In addition, quite often the client is hiring accounting/finance personnel from the accounting firm, which could lead the auditors to be less critical.

"My argument for years is that you cannot provide tax and consulting services to an audit client and remain independent. The dollars and the differences in the roles played are just too great.

"When I see an unqualified audit report, I interpret the report as 'this company will not go out of business before the next audit.' A 'going concern' qualification means 'this company MAY go out of business before our next audit.'

"As I am typing this, my annual renewal for my membership to the AICPA is sitting on my desk. I almost hate to send it in."

Then there was this, from reader John Glynn: "Auditors are engaged by the SHAREHOLDERS of a company, NOT management, thus their duty is owed to the investors and they do have a certain responsibility to 'monitor' the actions of the executives. I'm not na¿ve, and I do recognize that it is difficult for auditors to maintain independence since their fees are paid by the Company. But to imply that auditors are essentially 'in the pocket' of executives is misleading since you fail to consider the other factor in the auditing process that helps foster auditor objectivity -- the threat of investor lawsuit."

Then why are so many companies pushing the envelope with the blessing of so many auditors? (See the previous letter for a possible answer.) And why, pray tell, aren't the auditors hired by the audit committee? While they may be engaged by shareholders, they're chosen by management and the actual vote is usually nothing more than a (thump) rubber stamp.

Finally, Timothy Robinson is bothered by a recent comment here that one of my sources is a short-seller who puts his money where his mouth is. "It's great he puts his money where his mouth is, and always to try to influence stocks he is short," Timothy writes. "That smacks of real manipulation, and I both resent, and abhor it."

So then don't read it. As part of biz journalism, we seek sources who know what they're talking about, and quite often they hold positions in stocks. At

TheStreet.com

we attempt to identify the positions of our sources. And

TheStreet.com

speaks to the credibility of those sources with the motto, "When they mess up, we fess up."

Also, didja ever notice that most gripes directed this way are regarding perceived "manipulation" on the short side, rarely on the long? The irony is that, for the most part, it's the touting that gets you in trouble.

Enjoy the Fourth.

Herb Greenberg writes daily for TheStreet.com

. In keeping with the editorial policy of

TSC

, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnership. He welcomes your feedback at herb@thestreet.com. Greenberg also writes the monthly "Against the Grain" column for

Fortune.