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Warren Buffett’s Annual Letter to Shareholders

Berkshire Hathaway CEO Warren Buffett’s annual letter to shareholders is now online. One of the best (and free!) business commentaries that you’ll ever find. This year Buffett warns about impending disasters in the derivative markets. He also suggests that CEOs of American companies have a lot of work to do:

The job of CEOs is now to regain America‚s trust ˆ and for the
country‚s sake it‚s important that they do so. They will not succeed in this endeavor, however, by way of
fatuous ads, meaningless policy statements, or structural changes of boards and committees. Instead, CEOs
must embrace stewardship as a way of life and treat their owners as partners, not patsies. It‚s time for CEOs
to walk the walk.

He also recommends that Audit Committees of company boards ask company external auditors to weigh in on four specific questions as part of their reviews of company financials and practices:

  1. If the auditor were solely responsible for preparation of the company‚s financial statements,
    would they have in any way been prepared differently from the manner selected by
    management? This question should cover both material and nonmaterial differences. If the
    auditor would have done something differently, both management‚s argument and the
    auditor‚s response should be disclosed. The audit committee should then evaluate the facts.

  2. If the auditor were an investor, would he have received ˆ in plain English ˆ the information
    essential to his understanding the company‚s financial performance during the reporting
    period?

  3. Is the company following the same internal audit procedure that would be followed if the
    auditor himself were CEO? If not, what are the differences and why?

  4. Is the auditor aware of any actions ˆ either accounting or operational ˆ that have had the
    purpose and effect of moving revenues or expenses from one reporting period to another?

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