Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Microcap & Penny Stocks : Financial Shenanigans: Stocks Looking for a Fall -- Ignore unavailable to you. Want to Upgrade?

To: Anaxagoras who wrote (79)	11/14/1998 3:29:00 PM
From: Anaxagoras	Read Replies (3) \| Respond to of 108

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