Joanna, there are issues concerning accounting abuses by acquiring companies. It isn't a question of doing something wrong in the legal sense. It is a question of providing accounting that presents an unbiased position of the company. While that is the ostensible aim of GAAP accounting, it is all too frequently abused.
For example, an acquiring company gets to write off "in-process R&D". This, in effect is a way to hide future R&D costs, and thus boost apparent earnings. That is a major abuse used by virtually all companies.
The second one, alluded to in the article, is the reclassification of revenues to "deferred revenues". A deferred revenue item is one where product has not yet been delivered but payment has been recognized, so it is listed as an asset. Ordinarily a deferred revenue item is conservative accounting, but used in conjunction with an acquisition, it once again provides a future source of earnings as revenues are recognized from this "honey pot".
These two accounting gimmicks allow the acquiring company to expense a slew of "one-time" acquisition related charges and thus increase future earnings recognition. Every quarter we seem to get a recurring crop of these "one-time" charges.
NETA and just about any other acquisitive company does this because it is allowed by current FASB regs. These regulations need to change, because the purpose of accounting is to present a fair picture of the company's financial status.
As you may recall, I said sometime back that NETA needed to stop acquiring companies for several quarters before shareholders could get a feeling of where the company stood. I hope this post explains why I feel that way.
TTFN,
CTC
P.S., I am still long NETA, and I still think this company is the gorilla of network security. It just needs to redirect its energy to growing internally for awhile.
TTFN,
CTC |
