OOps! I thought this might happen! We'll see how it reacts, but I am glad I sold my AOL..
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Friday August 21, 7:36 am Eastern Time
SEC considers limits on acquisition write-offs-WSJ
NEW YORK, Aug 21 (Reuters) - The Securities and Exchange Commission said it may impose new limits on the way companies book their acquisition write-offs due to the poor quality of some recent corporate earnings reports, the Wall Street Journal reported Friday.
In particular, the SEC is worried that a rising tide of companies are abusing acquisition charges for purchased research and development, goodwill and restructuring costs. Accounting critics say some acquiring companies are reporting dubious write-offs for these costs to artificially ''manage'' subsequent earnings.
Brian Lane, director of the SEC's division of corporation finance, told the Journal the SEC first has to discuss these problems with corporate and accounting executives. Once that is done, the SEC will then consider ''tightening the accounting rules or auditing rules'' for these charges or ''we have our own rules that we might change,'' moves that could take place next year, he said. The SEC enforces accounting and auditing rules. It has the legal authority to enact such rules on its own, but rarely does so. ''We are considering our regulatory options at this point,'' Lane said.
Notably, a growing number of companies are writing off huge chunks of their acquisition costs as purchased R&D. The higher the value for these charges, the more acquirers can avoid hits to future earnings from goodwill. When companies purchase other firms, they must write off any resulting goodwill, the premium paid over the fair-market value of an acquired company's assets, for as long as 40 years, slicing into earnings every year along the way.
SEC officials recently questioned R&D charges taken by Envoy Corp. (ENVY - news) a Nashville, Tenn., medical-claims processor, and America Online Inc. (AOL - news). Both companies have said their treatment of R&D write-offs meets generally accepted accounting principles.
In addition, the SEC is worried about the rise in reported restructuring charges, Lane said. Such charges are usually taken for things like layoffs or plant closings, and can temporarily depress profits, but make earnings glow in subsequent years. They are ''often characterized as one-time unusual events, but if they are one-time unusual items, then why are they becoming more usual?'' Lane asked.
The SEC's signal that it may tighten the rules covering these write-offs comes in the wake of the disclosure last week that the agency's Office of the Chief Accountant is meeting with accounting and corporate executives to discuss the recent wave of corporate accounting problems.
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