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Just how much money do most technology companies make? It seems an absurdly broad if not naive question. To answer it requires the examination of the accounts of hundreds of companies - a lengthy, laborious and difficult process.

This, apparently, is exactly what the Harvard Business School Professor Michael Porter and a team of undergraduates are doing. And when they report their results later this year, they are likely to tell a story that would be disturbing if it were not already so widely suspected: that the accounts filed by most technology companies in the US over the past decade have significantly exaggerated profitability.

The research will only add to the paranoia that is already affecting investors in the wake of the Enron collapse. If the greedy executives and the colluding auditors of the failed energy giant Enron were able to create an apparition of financial health with apparent ease, then who knows how many more reputable companies have managed to inflate revenues, manipulate profits and hide debts?

Enron, of course, was a special case. But even so, events there have alerted investors to the laxity and inaccuracy of financial reporting in both the US and Europe. And, as a string of recent events demonstrate, the technology sector, with its fast growth and its complexity, is peculiarly vulnerable and would benefit from a radical overhaul in accounting regulation.

At one extreme, there is outright fraud. Even before Enron, the collapse of Belgian voice technology products company Lernout & Hauspie, should have raised more concerns than it apparently has. L&H, after all, may have been Belgian, but it was listed on Nasdaq and was subject to US accounting rules. And, like Enron, transactions between a network of inter-related companies were somehow able to bamboozle auditors and investors into thinking that debts at the parent company were lower, and revenues were higher, than they actually were.

Such examples are rare. Of equal and probably greater concern, however, are the legitimate accounting practices that mislead or confuse even astute investors. In February, for example, Cable and Wireless, the telecoms company, was accused of boosting its revenues by the use of 'hollow swaps' - bartering of spare network capacity with other suppliers. Just a few days earlier, US telecoms company Global Crossing, now in Chapter 11, was accused of much the same offence.

If bartering is done for a legitimate commercial reason, it is allowed. If it is merely done to boost revenues, then it is not. C&W vehemently denies any wrong doing.

Sometimes, it is the mere fact of switching from one way of accounting to another that has blurred investor understanding. Take, for example, the cases of Cedar, the UK accounting software company, and Computer Associates, the US software giant. In January, Cedar's management told shareholders that if they did not accept a £3.8 million (€6.1m) bid for the company from VC Alchemy, then they would file for bankruptcy.

Just a year ago, in March 2001, Cedar was valued at £1 billion (€1.6bn). In mid-2001, with sales deteriorating, Cedar took the unusual step of switching from UK accounting rules to US rules, a move that, it said, was more conservative, and would reassure investors that its recorded revenues would be realised. Although the result was a sudden drop in immediately recorded sales, there was no need to worry, it said; the underlying sales picture was improving. Investors took the company at its word and Cedar's share price rose. Just six months later, it was on the brink of bankruptcy.

Over in the US, Sanjay Kumar, CEO of Computer Associates, also found himself in a predicament in early February. As he prepared to outline his vision for the company at a Goldman Sachs conference, confident that he had garnered sufficient support for two bond issues valued at over $1 billion (€1.1bn), Moody's, the credit ratings company, suddenly announced it was planning to downgrade CA's $3.6 billion (€4.1bn) debt.

Talk of a rating downgrade (from baa1) not only wrecked the bond issues, which were cancelled, but wiped more than 12% off CA's share price. Kumar then spent most of the conference defending the company's strategy, its financial position - and its accounting practices.

CA's accounting is among the most controversial in the industry. In 2001, it moved towards a new accounting treatment that defers software revenue over the period of lifetime of its use. That enabled CA to take a very large write off, and to recover, on a pro-forma basis, its profitability.

So, during the first nine months to March 31 2001, CA reported net losses of $864 million (€984.7m) on revenues of $2.2 billion (€2.5bn). But, it says, those official figures are not the way to look at CA. On a pro-forma basis, it posted nine month revenues of $4.3 billion (€4.9bn) with operating profits of $1.7 billion (€1.9bn).

The use of pro-forma accounting is, in fact, causing such concern that the Securities and Exchange Commission has warned companies to curb the practice. But if anything, it is becoming more widespread - especially in the technology sector.

At a recent press and analysts briefing, Larry Carter, the chief financial officer of Cisco, explained that Cisco had produced two different sets of accounts to help investors understand its business better. It's simply a matter of providing more information and a choice of analytical techniques, Carter argued. But critics are unsure: they say pro-forma accounts, (which, for example, might exclude certain write offs) simply confuse the investors, and almost always cast the company in a better light.

Cisco, in fact, was the subject of a recent Business Week investigation that alleged that its acquisition spree, coupled with some other practices (such as large scale inventory write-offs), had inflated the company's underlying profitability. Cisco disputes the claims.

Over at the ultra conservative IBM, another debate is gathering stream. For years, critics such as Bob Djurdjevic of Annex Research have said that large-scale share buy backs are a self-serving way of improving earnings per share. They improve the value of executive shares and options, but are not necessarily a good use of cash.

The ramifications of all these disputes is now being seen in the UK. In early February, an undisclosed US fund dumped 4% of the stock of Misys, the UK financial software company, apparently because, after Enron, it was deemed to be too risky. And some analysts have even begun asking whether Sage, the accounting software company, should continue to recognise sales that have been made on a 'sale or return' basis to dealers.

From a historical perspective, there is an inevitability in all this. The raging bull market in the technology sector meant that weak accounting practices were widely practiced and were rarely punished. Problems were pushed into the future and, over the longer term, things usually worked out. Now, all that is over and it is time to change.