This from the NYT previously linked sums up Sullivan's rationale, if you can call it that, fairly well and also offers a historical perspective from the regulated days of telecom.
Mr. Sullivan explained that what he had done, according to a person who has been briefed on Mr. Sullivan's explanation, was make a judgment call. He believed that the expenses were an investment in telecommunication line capacity, which would provide increasing revenue in future quarters. Therefore, he reasoned, it was appropriate to defer expenses to future quarters.
This does not follow generally accepted accounting principles, according to accounting experts. However, it was a procedure that was used by telecommunications companies before the deregulation of the industry. Under that system, public utility commissions allowed for the creation of models through which expenses of underutilized assets could be deferred in this way. Such rules, however, are not permitted under the current deregulated system, and are not accepted under accounting rules. |
