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.

Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: HH who wrote (4254)	8/22/1998 9:28:00 AM
From: Cynic 2005	Read Replies (3) \| Respond to of 86076

SEC May Impose Limits On Acquisition Write-Offs By ELIZABETH MACDONALD Staff Reporter of THE WALL STREET JOURNAL The Securities and Exchange Commission said it may impose new limits on the way companies book their acquisition write-offs due to the poor quality of some recent corporate earnings reports. In particular, the SEC is worried that a rising tide of companies are abusing acquisition charges for purchased research and development, goodwill and restructuring costs. Accounting critics say some acquiring companies are reporting dubious write-offs for these costs to artificially "manage" subsequent earnings. "How auditors report these charges in financial statements doesn't change the value of these companies," said Pat McConnell, accounting and tax analyst at Bear, Stearns & Co. "But the disclosure and transparency of these charges should certainly be improved so investors and analysts can properly assess the value of these companies." Considering Options Brian Lane, director of the SEC's division of corporation finance, said the SEC first has to discuss these problems with corporate and accounting executives. Once that is done, the SEC will then consider "tightening the accounting rules or auditing rules" for these charges or "we have our own rules that we might change," moves that could take place next year, he said. The SEC enforces accounting and auditing rules. It has the legal authority to enact such rules on its own, but rarely does so. "We are considering our regulatory options at this point," Mr. Lane said. Notably, a growing number of companies are writing off huge chunks of their acquisition costs as purchased R&D. The higher the value for these charges, the more acquirers can avoid hits to future earnings from goodwill. When companies purchase other firms, they must write off any resulting goodwill, the premium paid over the fair-market value of an acquired company's assets, for as long as 40 years, slicing into earnings every year along the way. A recent New York University study shows only three companies wrote off part of their acquisitions as R&D during the 1980s. But 389 have done so in the 1990s -- with a record 156 in 1996 alone. SEC officials recently questioned R&D charges taken by Envoy Corp., a Nashville, Tenn., medical-claims processor, and America Online Inc. Both companies have said their treatment of R&D write-offs meets generally accepted accounting principles. Rise in Restructuring Charges In addition, the SEC is worried about the rise in reported restructuring charges, Mr. Lane said. Such charges are usually taken for things like layoffs or plant closings, and can temporarily depress profits, but make earnings glow in subsequent years. They are "often characterized as one-time unusual events, but if they are one-time unusual items, then why are they becoming more usual?" Mr. Lane asked. The SEC's signal that it may tighten the rules covering these write-offs comes in the wake of the disclosure last week that the agency's Office of the Chief Accountant is meeting with accounting and corporate executives to discuss the recent wave of corporate accounting problems. Over the past year or so, more than a dozen companies, including Cendant Corp., Oxford Health Plans Inc., Sunbeam Corp. and Waste Management Inc., have had accounting problems blow up in their faces. The SEC's heightened concern stems in part from its perspective that auditors aren't doing enough to stop companies from bending the accounting rules to manage their earnings. Auditors increasingly are asking the SEC to bless certain dubious accounting practices that their corporate clients demand. "We won't go away, we're here and we're vigilant," Mr. Lane said.