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To: nihil who wrote (21198)	1/26/1999 8:31:00 AM
From: Cynic 2005	Read Replies (3) \| Respond to of 77397

<<A firm can write off R&D it performs. >> Huh! If compaq acquired DEC for 10 billion and takes a 5 bil R&D write off for the acquisition, how can one justify that? How much of it is real and how much is from future costs. When future costs are written-off it is easy show profit boost even with no revenue gain. Ask Gateway. The next thing these accounting shenanigans and the "see no evil and hear no evil shareholders want" is to write-off salaries paid as one time cost and report higher profit on an "operating basis." Well, I take that back - they are already doing it in the form of stock options. The funny thing is when it all blows-up, a la Sunbeam or Cendent, you can lynch the auditors and management who did it in the first place with pressure from management who did it due to the pressure from the shareholders. Just like this Clinton deal, nobody wants to take responsibility anymore. It is easy money, why bother?

To: nihil who wrote (21198)	1/26/1999 2:53:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 77397

Nihil, you've got it backwards. The SEC wants acquiring firms to set up reserves for R&D they haven't performed over the life of the project. Under current practice, many acquiring firms simply take the write-off as a one time event (effectively writing off future expenses now). Compaq, in its most recent SEC filing clearly lays out the rationale for the DEC write-offs. The hallmark of pooling of interests accounting is that balance sheet items are simply added across. Their is no requirement for capitalizing that which had previously been expensed. Under purchase rules, however, the difference between the amount paid for a company and the market value of the acquired assets less the acquired liabilities are capitalized and amortized as "goodwill". As I see it, Levitt is absolutely correct. We need more transparent accounting rules. The current rules are so convoluted and removed from reality that I recommend that you pay attention only to the appropriate cash flow statements. That will bypass all of these issues. Free cash flow is IMO the single best metric to use. Notice that cash flow and corporate income taxes are unaffected by how companies account for the merger. TTFN, CTC