SWM - Mark Moore

of a firm’s financials. The firm’s management ultimately decides how much information theywould desire to disclose. In order for firms to appear more credible to investors and analysts, ahigh level of disclosure and low levels of manipulation is necessary. When firm’s numbers andfinancial analysis appear irregular, potential red flags could possibly be raised. When theirregularities are spotted, red flags denote that there may be distortions in a firm’s financials oraccounting policies. Firms must then undo these distortions by going through their financialstatements and find where they must make adjustments and restate anything necessary.After reviewing Schweitzer-Mauduit’s annual reports for the past five years, it seems asif the research and development expense is the only asset needed to be restated. This isbecause this particular expense is more than 20 percent of its operating income for the past 3years; the first 2 years (2004 and 2005) had no R&D expense. It is not necessary to restategoodwill, which will be discussed later.93