Hey gang, this post falls under the general discussion topic of monkey business. In Michael Murphy's latest issue of his California Technology Stock Letter he's got a few nice pages about write-offs of IPRD (i.e. In Process Research and Development). The SEC has its eye on abuses that come from this, and Murphy refers to a September speech in which
<<...Levit warned about IPRD, aggressive revenue recognition, abuses of materiality, 'big bath' restructuring charges and reserves used to manage earnings. The last was probably provoked by a garrulous CEO who boasted of his 'honey pot' in case times got tough.>>
Being a bear by nature, I loved that "honey pot" line (anyone else notice it's damned hard to type with paws?). And as a Shenanigan buster, I was intrigued and hunted up the relevant speech over at the SEC's site. Entitled "The Numbers Game", some of you might find it worth a perusal.
sec.gov
As a teaser:
<<...I'd like to talk to you about another widespread, but too little-challenged custom: earnings management. This process has evolved over the years into what can best be characterized as a game among market participants. A game that, if not addressed soon, will have adverse consequences for America's financial reporting system....Tonight, I want to talk about why integrity in financial
reporting is under stress and explore five of the more common
accounting gimmicks we've been seeing. Finally, I will outline a
framework for a financial community response to this situation.>>
The five gimmicks, unfortunately discussed in little detail (it was a speech, after all) are
<<..."big bath" restructuring charges, creative acquisition accounting, "cookie jar reserves," "immaterial" misapplications of accounting principles, and the premature recognition of revenue.>>
Enjoy!
Anaxagoras |
