Independent Research and Evaluation of the Transparency, Reliability
and Risks of Corporate Accounting and Governance Practices

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"Crack-Up: Corporate Integrity Continues to Spiral Downward"

by James A. Kaplan
Chairman, Audit Integrity, Inc.

April 30, 2008

The Wall Street Journal, in an article dated April 3, 2008, ("Very Friendly Skies") pointed out the all-too-cozy relationship between the Federal Aviation Administration and Southwest Airlines, one of the leading national air carriers that the FAA is charged with regulating. "Cozy" strikes me as a major understatement, since Southwest was so successful in averting required maintenance procedures for their aircraft. Forty-six of their planes had not been inspected, and six of those planes had surface cracks on the skins that put passengers' lives in danger.

If Southwest is prepared to risk the lives of its own customers and employees -- evidently gambling on an infinite supply of replacements should any passengers and crew be lost in a crash -- is there any limit to what corporate management will do to improve their position at the expense of others?

HOW THE AGR® MEASURES RISK

The Accounting & Governance Risk (AGR®) rating is an assessment of the quality and transparency of corporate behavior. Our clients use AGR® analysis because it works—see our Scorecards and White Papers (to the right) along with research reports to study our proven results.

Developed by industry experts, the AGR® rating has been extensively back tested with 10+ years of historical data. This proprietary measure of risk is based on objective statistical assessments of high-risk behavior, measuring multiple financial and non-financial criteria.

For more information see: Methodology.

Audit Integrity is the leading provider of accounting and governance risk analysis on public companies. Through the forensic study of the factors behind fraud, Audit Integrity proprietary modeling effectively detects and measures fraud and transparency-related risks in over 8,500 publicly traded corporations.

Offering compelling value and unbiased insight to clients:

Investors – Achieve excess returns using AGR® ratings, and gain proprietary, effective idea generation and overall portfolio risk management.
Insurers – Avoid companies at high risk of litigation. Effectively set policy premiums and manage risk thresholds.
Auditors – Utilized for client management, acceptance and retention, as well as identifying new potential consulting opportunities.
Corporations – Obtain forensic, objective analysis to manage internal risks and anticipate negative events that can harm your stock price and company reputation.

Web-based and data feed services include:

Profile Report – A summary of the AGR® and key risk factors, with up-to-date high-risk events and ratios.
Early Warning Reports – Analyst-driven reports on specific companies facing significant equity loss or litigation risk.
WatchLists – Offering our proprietary monthly Investor WatchList, which tracks our lowest rated companies, as well as user-defined lists to track key alerts on companies of interest.

more...

INTEGRITY MATTERS

The impact of transparent behavior is proving to be of great significance to corporations in areas such as equity returns, shareholder litigation, and financial restatements.

A growing body of research indicates that companies lacking integrity in their financial reporting or in corporate behavior tend to pay a steep price. This impacts corporate stakeholders directly in many forms, including equity loss, costly litigation, rising capital costs, and damaged corporate reputation. Integrity matters and Audit Integrity provides clients unique insight into corporate risk.

Extensive back tests and ongoing monitoring shows the effectiveness of using AGR® -based risk models.

AUDIT INTEGRITY SCORECARDS


Our AGR Equity Factor can provide both quantitative and fundamental investors with significant excess returns (Alpha). Click image to view our 1998-2007 returns.	Our Class Action Litigation Model provides insurers and other stakeholders with accurate indication of litigation risk. Click image for our Full Year 2007 Litigation Risk Model Results.