There is some evidence that analysts can see through earnings smoothing that companies employ to reduce the volatility of reported earnings (see here and here, for example). But what about analyst efforts to make company earnings look smoother, or even better, than they actually were? David Pauly’s opinion piece on Bloomberg today reminds us of the vested interest that security analysts have in not just perpetuating earnings lies, but creating them.  Sure, the analysts argue, they are just “smoothing” the earnings for things that don’t happen all the time.  But what they are really doing is choosing to ignore items they failed to include in their previously released esimates of the companies’ earnings – so they won’t look so stupid. Since, its difficult (but not impossible) for companies to cook the books and still stay with GAAP, the analysts are effectively doing it for them:

…Stock analysts continue to promote corporate earnings lies, insisting that net income isn’t really what investors need to know.

Instead, their earnings estimates ignore often huge expenditures that can’t help but affect a company’s health.

In analystspeak, Intel Corp. wasn’t hit with a $1.45 billion fine from the European Union in the second quarter for anticompetitive practices.

…Google, according to generally accepted accounting principles, earned $1.48 billion, or $4.66 a share, in the period. Not enough for Wall Street, which prefers to say the company earned $5.36 a share, leaving out the cost of stock options..

So, if GAAP accounting doesn’t give enough earnings to hype more trading, analysts simply restate the companies numbers according to GAAS…General Analyst Accomodation Shenannigans. Then the financial media dutifully reports what the analysts want America to hear.