(FORTUNE Magazine) – After the apparent fraud at WorldCom and Enron, the stupid accounting tricks at Qwest and Xerox, the zillion-dollar write-downs at AOL Time Warner and JDS Uniphase, the suspicion does begin to nag: Maybe this is just the beginning. Maybe nobody's earnings statements can be trusted. Maybe we're about to discover that corporate America is in fact a nonprofit enterprise.

Not so fast. We're not saying there won't be more alarming revelations. But companies are still making boatloads of money; just ask the taxman. Corporate executives may have millions of reasons (called stock options) to exaggerate the earnings they report to investors. But the opposite incentive is at work when they send their tax returns to the IRS. That makes the Commerce Department's measure of corporate profits, based on tax data, a nice reality check.

Here's what that reality check tells us. First, there was indeed a spectacular profit boom in the mid-1990s. Tax profits and reported earnings (earnings per share of the S&P 500) both more or less doubled from 1992 to 1997. The boom came to a halt with the global financial crises of 1998. Then something weird happened: Tax profits--that is to say, real profits--kept sputtering. But reported earnings rose and rose in 1999 and 2000, before collapsing last year.

What the heck happened? The most obvious explanations for the disconnect are disparities in accounting for stock options and pension funds. When a company's employees exercise stock options, the gains are treated for tax purposes as an expense to the company but are completely ignored in reported earnings. And while investment gains made by a company's employee pension fund are counted in reported earnings, they don't show up in tax profits.

Analysts at Standard & Poor's are working to remove those two distortions by calculating a new "core earnings" measure for S&P 500 companies that includes options costs and excludes pension fund gains. When that exercise is completed in the coming weeks, most of the profit disconnect may disappear. Then again, maybe not. In struggling to deliver the outsized profits to which they and their investors had become accustomed in the mid-1990s, a lot more CEOs and CFOs may have bent the rules than we know about. "There was some cheating around the edges," says S&P chief economist David Wyss. "It's just not clear how big the edges are."

While conservative accounting is now back in vogue, it's impossible to say with certainty that reported earnings have returned to reality: Comparing the earnings per share of the S&P 500 with the tax profits of all American corporations, both public and private (which is what the Commerce Department reports), is too much of an apples and oranges exercise. But over the long run reported earnings and tax earnings do grow at about the same rate--just over 7% a year since 1960, according to Prudential Securities chief economist Richard Rippe, Wall Street's most devoted student of the Commerce Department profit numbers. So the fact that Commerce says after-tax profits came in at an annualized rate of $615 billion in the first quarter--a record-setting pace if it holds up for the full year--ought to be at least a little reassuring to investors. "I do believe the hints of recovery that we're seeing in tax profits will continue," Rippe says.

That does not mean we're due for another profit boom. Declining interest rates were the biggest reason profits rose so fast in the 1990s, says S&P's Wyss. Rates simply don't have that far to fall now. So even when investors start believing again what companies say about their earnings, they may still be shocked at how slowly those earnings are growing.

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