To all the the otherwise gentlepersons who disagreed with my view on cisco acquisition related write-offs as scam.
upside.com
<<Write-offs can be legitimate, of course. But excessive write-offs violate an accounting principle known as "the matching concept," which holds that the costs associated with revenues from a given period are expensed for that period. When a company prematurely writes off a production facility or research project that might yield revenue in the future, it clears the way for future revenue gains that will be expense-free.
Merger and acquisition-related write-offs are an especially convenient sinkhole for expenses that companies want to bury. In response to an SEC inquiry, 3Com reduced its U.S. Robotics merger-related charges from $426 million to $270 million, a decrease of $156 million.
The SEC is especially concerned about the high-tech industry's rising volume of merger-related write-offs being taken for in-process R&D, says Chief Accountant Turner. Buyers are allowed to write off acquired companies' in-process R&D, which reduces the amount of depreciation the buyer must take for goodwill--the amount a company pays beyond the book value of its target company.
Last fall, America Online Inc. of Dulles, Va., reduced planned merger-related write-offs after the SEC took issue with its accounting practices. And MCI WorldCom Inc. slashed its merger-related write-offs by as much as $3 billion, saying it was acting under SEC guidance.
Still, in some cases, buyers are writing off nearly the entire price of an acquisition to R&D. Says Turner, "When you see a high percentage of the purchase price--more than 90 percent of a business--being written off, you say, 'How is it that 90 percent of the fair value of that business was related to R&D that was under way?' Common sense would tell you that would raise eyebrows and concerns about whether the accounting is being done right." >>
The term common sense is what is a scarce commodity in this manic bubble. Perhaps that is why every paranoid bubble lover will jump on someone who raises a common sense issue. |
