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Downturns are accounting crooks’ worst enemy

economist.com

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Re: Downturns are accounting crooks’ worst enemy

#31

Post by Havoc »

naveen99 wrote: post #29
Havoc wrote: post #13

Worth pointing out that this is largely a US only problem. Rest of the world uses IFRS which clamped down on that non-GAAP adjustment stuff pretty hard because well it’s not exactly a subtle gambit

Is there an official list of assumptions used in GAAP? According to the wikipedia, GAAP is just a bunch of very high level principles, such as be honest, consistent, give your best estimate of your finances... But it doesn't seem to prescribe any particular rules to use, just that you use them consistently. And then, what does that mean about non-GAAP ? Does non-GAAP basically allow you to be inconsistent and dishone…

GAAP just means the local accounting standard. So US GAAP for the USA. UK GAAP mean FRS102 etc.

Non-GAAP essentially means the company decided it's extra special and the standard accounting doesn't capture it's uniqueness. Sometimes that's true but most of the time it's executive not liking what the GAAP number tells them.

A good example is WeWork's "Community Adjusted EBITDA".

Re: Downturns are accounting crooks’ worst enemy

#32

Post by gandalfian »

neximo64 wrote: post #27
gandalfian wrote: post #9

Earlier quoted context omitted.

And Enron, Olympus, bt, WorldCom, Tesco, those people who bought dragon dictate and the African firm whose balance sheet was entirely supported by a large green gemstone. Just to name a few off the top of my head. Trying to work out a firm's true assets, liabilities and income is a genuine problem.

What’s this gemstone company?

Turns out it was red, but was an £8000 african stone but ended up in an english company as a 200,000 stone and then transferred to a bankrupt english construction firm as an 11 million pound asset! Ended in tears. Unclear what eventually happened to the stone. https://www.google.com/search?q=Gem+of+Tanzania

Re: Downturns are accounting crooks’ worst enemy

#33

Post by gandalfian »

netsharc wrote: post #26
gandalfian wrote: post #8

Earlier quoted context omitted.

https://outline.com/FPGgpv

Is that the 2nd page? It doesn't start with the story about Madoff like in the original.

Yup, sorry it clearly didn't work. Hope it is not broken. http://webcache.googleusercontent.com/search?q=cache:https:/...

Re: Downturns are accounting crooks’ worst enemy

#35

Post by joosters »

kohtatsu wrote: post #24
joosters wrote: post #19

Earlier quoted context omitted.

Is there any way to turn this into a bookmarklet, so that clicking on it would prefix the current URL with that?

javascript:window.location="about:reader?url="+window.location (sorry I'm on my phone just guessing; this kind of stuff might not be available because security or something nowadays)

It's got to be something like that, unfortunately I just don't know the exact syntax. I've got some other javascript bookmarklets in firefox, but looking now at their links, they are a mess of %-encoding, and I'm not sure if that's important or not (perhaps they got mangled through an old import)

FWIW, here's a bookmark to get rid of static bars (the kind of thing annoying websites have stuck at the top of the page and won't go away when you scroll):

  javascript:(function()%7B(function%20()%20%7Bvar%20i%2C%20elements%20%3D%20document.querySelectorAll('body%20*')%3Bfor%20(i%20%3D%200%3B%20i%20%3C%20elements.length%3B%20i%2B%2B)%20%7Bif%20(getComputedStyle(elements%5Bi%5D).position%20%3D%3D%3D%20'fixed')%20%7Belements%5Bi%5D.parentNode.removeChild(elements%5Bi%5D)%3B%7D%7D%7D)()%7D)()
I don't remember it being quite so ugly when I first added it, surely bookmarks don't need to %-encode spaces and curly brackets?

Re: Downturns are accounting crooks’ worst enemy

#36

Post by nknealk »

For those who have never read a 10K in their life, the SEC requires all companies who publish non-GAAP metrics to also (1) publish GAAP metrics more prominently than non-GAAP metrics and (2) publish a reconciliation on how they arrived at their non-GAAP measure from the published GAAP metrics.

Here’s a writeup of the SEC rules on non-GAAP metrics in earnings reports: https://www.protiviti.com/US-en/insights/sec-issues-guidance...

There’s a difference between what Enron did (ie. fraud) vs presenting alternative ways to measure business performance. If an investor thinks community adjusted EBITDA is a good metric to judge a business and then loses all their money, that’s on the investor. Even our most recent poster child of non-GAAP shenanigans publishes the GAAP numbers ahead of the non-GAAP measures (see eg. Page 111 which is the first mention of “adjusted EBITDA” presented below GAAP metrics vs page 21 on which the GAAP income statement is first published): https://www.sec.gov/Archives/edgar/data/1533523/000119312519...

Re: Downturns are accounting crooks’ worst enemy

#37

Post by perl4ever »

lotsofpulp wrote: post #23
Havoc wrote: post #13

Worth pointing out that this is largely a US only problem. Rest of the world uses IFRS which clamped down on that non-GAAP adjustment stuff pretty hard because well it’s not exactly a subtle gambit

US governments at all levels love to use GAAP since it lets them use whatever assumptions they want to make up liability numbers for defined benefit pension and retiree healthcare benefits. In fact, the US itself forced non taxpayer funded employers to use strict standards when calculating defined benefit pension liabilities (PPA 2006), but exempted taxpayer funded pension plans from any rules. This lets current poli…

It is true that governmental accounting standards are different from private sector ones. I believe the GASB promulgates the former; the FASB the latter.

So everybody uses "GAAP" but it's not the same standards nor "whatever assumptions they want". If they used anything else, it would still be "GAAP", too.

Re: Downturns are accounting crooks’ worst enemy

#38

Post by perl4ever »

naveen99 wrote: post #29
Havoc wrote: post #13

Worth pointing out that this is largely a US only problem. Rest of the world uses IFRS which clamped down on that non-GAAP adjustment stuff pretty hard because well it’s not exactly a subtle gambit

Is there an official list of assumptions used in GAAP? According to the wikipedia, GAAP is just a bunch of very high level principles, such as be honest, consistent, give your best estimate of your finances... But it doesn't seem to prescribe any particular rules to use, just that you use them consistently. And then, what does that mean about non-GAAP ? Does non-GAAP basically allow you to be inconsistent and dishone…

See: FASB, GASB

Re: Downturns are accounting crooks’ worst enemy

#39

Post by clairity »

CapriciousCptl wrote: post #22
Havoc wrote: post #13

Worth pointing out that this is largely a US only problem. Rest of the world uses IFRS which clamped down on that non-GAAP adjustment stuff pretty hard because well it’s not exactly a subtle gambit

I think non-GAAP adjustments were mostly used in the article as a rough marker of "crookedness" that you can measure. Because by far, worldwide, the primary means of fraud involves revenue recognition and other accounting shenanigans (very much recommend the book by the same name) that both IFRS and GAAP are vulnerable to. It's just that's much harder to find that stuff out. But, when the SEC notices a problem with y…

the conclusion that EBITDA == “bullshit earnings” is overblown, or a feint at worst.

EBITDA lets you look at the operational performance of a business in isolation. that is, before financial considerations, where lots of little levers like tax shifting & accelerated depreciation can cook the numbers too.

if you're skeptical about one number on an income statement, you might as well be skeptical of them all (and for most public businesses, you should be skeptical).

edit: should note that "adjusted" anything on a financial statement should tingle the spidey senses.

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