dimitri,
Interesting article, although I'd tend to disagree with the premise that companies will jump on the bandwagon to correct deceptive accounting practices. Without restarting the debate on option issues, I still consider options considerably less critical than practices of capitalizing current expenses as assets, and off balance sheet tricks to shore up the books. The recent legislation is almost completely without teeth and basically amounts to the addition of one more bureaucratic red tape machine, heartily endorsed by paper tigers. CEOs and CFOs are already issuing PRs calling the bluff. When the stakes are measured in the billions of dollars, the threat of a pleasant few month stay in a country club prison is hardly a deterrent.
I recently started a small position in puts on HD after going over their filings. Their filings are a joke as far as disclosure is concerned. Financing of new locations is done off the balance sheet, expenses such as interest payments are capitalized as assets and there is virtually no disclosure on profits, losses, and exposure to credit card risk in their filings. They have issued over 10 million credit accounts, they admit to owning a portfolio of these loan pools, 21% of revenues are related to house credit accounts, and they actively hedge their interest rate exposure.
Nowhere in their filings is there any break down of this segment of their operations, and there is no disclosure of how these loan pools are funded. They pay $5 million a year to their auditors for "consulting fees". Insiders have taken out loans from the company in excess of $40 million. Compensation levels are absurd, not to mention the awards in the form of stock and options. They happily certified their books without a quiver. Why shouldn't they? It's all good according to GAAP.
The basic problem is how to get someone who makes $150K a year to prosecute someone who makes $30 million a year, especially when "investigations" are done under the table without any disclosure to the public. It's hard to imagine a more perfect set up for corruption and graft. Not to mention the only CEOs and CFOs required to certify their accounts are those of companies with revenue in excess of $1.2 billion. Why not make it a standard practice for all publicly held companies? Aren't bribes from small caps worth bothering with?
Maybe when enough private investors have exited the markets for institutional investors to start exercising their voting rights as owners, management will end up being accountable for how public companies are run. But until GAAP accounting is replaced with tax accounting, I really can't think of any good reason to hold a long position for any length of time in any US company. |
