It's Only A Footnote
One of FASB's favorite ways of providing investors with more information is requiring public companies to disclose information in the footnotes of their financial statements. This is where the disclosures about the cost of employee stock options or off-balance sheet financing appear. This sounds fine in theory, since a savvy investor or research analyst will simply read the footnotes and adjust the financial statements accordingly.
Unfortunately, it only sounds fine in theory. A new study indicates that auditors don't care much about errors in the footnotes (WSJ, reg req). Fortunately, auditors have independent oversight. Hopefully the PCAOB will take this study seriously and tighten up auditing standards.