Harry,
Thanks for bringing the matter up. It does look interesting, doesn't it? The subject is actually "described" in the company's PR today. Somewhere close to the bottom. Below the financials.
If I understand this correctly these are items which are consolidated into the company's accounts in Ireland because the Irish GAAP requires them to do so. On the other hand in the US they are not supposed to include the effects of holding these QSEP's in their reporting, so they don't. Instead they are indicating their existence "under the line".
The amounts are quite large. I would guess that this is some kind of Irish tax-avoidance scheme where they have put away some of their investments.
It is a pity that the US GAAP is so strict that these kind of arrangements may not be accounted for in a proper way.
Financial Times carried a piece some time ago on the differences between US and European accounting conventions. From this article:
The complexity arises because US financial reporting, unlike that of the UK and other countries, is based on detailed rules rather than broad principles. The US model deals with more issues and applications than any other set of accounting standards. "There probably isn't a country in the world that demands as much disclosure," says Stephen Zeff, a professor at Rice University in Houston, Texas.
The problem with highly prescriptive rules is that they can encourage companies to concentrate on complying with the letter of the law rather than its spirit. Baruch Lev, a professor at New York University's Stern business school, believes the focus on fine detail means US accounts often fail to capture the economic substance of companies' activities. "With all those rules and regulations, too many things are falling through the gaps," he says. "We need to move from legalistic concepts to economic concepts - not only to catch the Enrons but also to give a complete picture to investors."
globalarchive.ft.com
As far as I can see, Elan has done what could be expected from them. In the Irish reports they have accounted for these debts as a part of the consolidated group's debt, in accordance with Irish GAAP. And for the Americans where they due to the reporting restrictions are not allowed to consolidate, they have told about their potential liability "under the line".
I don't think it is reasonable to expect them to do more. That some of the analysts seem to have problems understanding this is another matter and more of a problem for the analysts than for Elan.
Ice |
