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Strategies & Market Trends : Rande Is . . . HOME -- Ignore unavailable to you. Want to Upgrade?

To: Tradelite who wrote (48783)	3/11/2001 12:05:13 AM
From: maverick61	Read Replies (1) \| Respond to of 57584

Tradelite - on financial statement manipulation - you didn't ask me - but it appears A&F made an error and your brother may want to alert them to it so it doesn't impact them if they later find it and correct it. He should have been w-2'd for the $200 paid. A company must W-2 what is paid in that calendar year. I doubt A&F was cooking the books in this regard (actually for their purposes - any hours worked before 12/31 would count as wage expenses in 2000 - as companies typically report on the accrual basis for financial reporting purposes - whereas for payroll reporting - its on a cash basis ) - they just somehow screwed up. BTW - ALL Companies cook the books ALL the time - its just to what extent they go and if it is beyond reason. I say this from personal experience (I used to work for a Big 5 public accounting firm and audited numerous companies). WHile one may think that accounting is black and white - there is actually a lot of grey mixed in. Companies need to use estimates in a number of areas (such as reserve for bad debts, warranty accruals, etc.) There are a whole host of accruals / reserves that are best estimates and can by "manipulated". Add to that that many audit adjustments are "passed" as immaterial - you are never looking at a purely accurate financial statement. here's an example: Lets say I make widgets. And I typically have a warranty reserve on the books for returned widgets (lets say 10% of sales). I am having a really good year this year - I am going to crush estimates - but hey, no sense being a one time hero - so being the conservative person I am, I boost my reserves for returned widgets by 2% percent that year by adjusting my estimates (I explain it to the auditors - who the company hires by the way - that we had some new personnel - and I think quality slipped for a while. This has the effect of increasing my expenses - and decreasing my net income. So, instead of crushing the estimates that year by say 5 cents a share - I just beat them by 3 cents. Whooo - I am still a hero beating the street - and I just tucked some funds away for a rainy day. Lets say the same thing happens next year - and I boost reserves again. The following year though things get bleak. Sales drop off and we are going to miss our estimates. not wanting to be an unemployed CFO - orhaving the Board come down hard on me - lo and behold - I become less conservative - and bring my reserve for returned widgets back to 10%. I tell the auditors - we have improved production processes, blah, blah, blah - and they buy it easily. Net effect - I DECREASE expenses - and thus increas net income - so instead of missing by 2 cents - I now beat by 2 cents (thanks to teh 2 cents a year I stashed away in reserves the last 2 years). Whooo - I am a hero once again !!! This is just one small example of how things are manipulated. Anyone who thinks it doesn't happen with EVERY company is kidding themselves - Its just to what extreme it occurs. take it from someone who has been there