WASHINGTON – U.S. corporate profits last year were overstated by US$130-billion, or about 27%, according to a study to be released today by a London-based think-tank.

The Centre for Economic and Business Research Ltd. compared earnings reports from companies listed on the New York Stock Exchange with statistics from the U.S. Bureau of Economic Analysis that remove several accounting adjustments.

If that were the case, the Dow Jones Industrial Average should be trading between 5,500 and 7,500 instead of trying to breach the 10,000 mark as it has been over the past several weeks.

“There are more Enrons,” said Douglas McWilliams, head of the CEBR.

The auditing virus from the collapse of Enron Corp. and the role of Arthur Andersen in helping to overstate its profits and hide its debts will continue to haunt markets in coming weeks, especially since Kenneth Lay, Enron’s former chairman, is expected to appear before Congress tomorrow.

“The market is certainly ripe for some recovery, but the Enron hearings are continuing and it’s an environment where I am sure many investors are happy to stay away for now,” added Rick Meckler, president of LibertyView Capital Management.

Investors, unfortunately, are learning there is a whole new world of accounting magic that brings into question the integrity of most major U.S. corporations. Enron had its questionable “LJMs” off-book partnerships. Global Crossing Ltd. used techniques called “roundtripping” to sell assets and then buy them back to pump its revenue. It is now under investigation by the Justice Department and the Securities & Exchange Commission.

Formerly darlings of the market, including Cisco Systems Inc. and Amazon.com Inc., are being hammered after investors became concerned they may have misstated earnings. Cisco shares alone fell 13% last week after its its second-quarter profit fell 24%.

Investors insecurity about the integrity of U.S. accounting will also be further rattled when the round of first-quarter earnings begin. According to the Thomson Financial/First Call survey of analysts, companies are expected to report a drop in profits of 8.2%. That will be the fifth consecutive quarterly drop in earnings, although profits are expected to rebound in the second quarter by 8.5%.

“We’re in a transition phase from treating [accounting] liberally in 2001, to being more rigid in 2002, so earnings growth is going to be a little less,” said Chuck Hill, TFFC’s director of research.

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