Misleading Accounting Exposed

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Goodwill Punting - December 27, 1999. Loren Fox. "As companies switch over to cash earnings, analysts and investors are even expected to start valuing stocks by the price-to-cash-earnings ratio, not the traditional price-to-earnings ratio. Many would welcome this shift, arguing that it would finally end the practice of viewing goodwill as some sort of burden."

Forecasts Made Rosy for Investors, but Results Are Sometimes Paler - December 21, 1999. Gretchen Morgenson. "It is not just footnotes that can contain land mines. Some companies actually change their bottom lines from the time of the news release to the regulatory filing."

The Party's Over - December 1999. Stephen Barr. (This link is hopefully just temporarily unavailable as cfo.com reworks their web site.) "FASB is ready to turn out the lights on the new economy's favorite accounting practices. Despite cries of protest from leaders of the New Economy, the Financial Accounting Standards Board and its pragmatic chairman, Edmund L. Jenkins, are determined to kill pooling accounting in acquisitions. Will opponents force a palatable compromise?"

Milking the Pension? - December 1999. John P. Mello, Jr. (This link is hopefully just temporarily unavailable as cfo.com reworks their web site.) "Currently, companies are required to reveal trends that have a significant impact on their earnings in the management discussion and analysis section of their annual reports. "If 90 percent of your earnings is attributable to profits from your pension plan, that seems to be something that should show up in the management discussion and analysis section," he says."

The Internet Economy Gets a Reality Check - November 29, 1999. Jonathan Rabinovitz. "An accounting-industry task force is reviewing questionable practices that lead to sky-high market valuations for Net companies. Revenue accounting wasn't always a hot topic. In the early 1990s, revenues weren't a vital statistic for valuing a company; earnings were likely to be scrutinized more closely than other data. That changed with the advent of the Internet age, when up-and-coming companies may go years without profits. In turn, revenue figures became a critical measure in setting stock prices."

Creative Accounting - November 1, 1999. Bernard Condon. "To get that handsome 30% figure, the bank added back noncash goodwill charges to its earnings. Then it subtracted goodwill from its shareholders' equity. In short, in calculating the ROE ratio it artificially boosted the earnings figure in the numerator while depressing the shareholders' equity figure in the denominator. The resulting figure is actually cash return on tangible equity."

Keeping an Eye on Merger Tricks - October 28, 1999. David Kathman. "If you like magic tricks, then check out the financial statements of just about any big technology or telecommunications company. There you can often find accounting legerdemain that would make Siegfried and Roy blush. Two of the most common such tricks--pooling-of-interests accounting and in-process research and development write-offs--are designed to greatly reduce the apparent cost of a merger, or even make it disappear entirely."

Despite Tyco's Defense, Shares Fall Again - October 15, 1999. David Leonhardt. "Investors began dumping shares of Tyco this week after they found out about the critical report by Tice's firm. It said that Tyco had taken overly large write-offs related to its mergers to inflate future earnings and that its cash flow had been deceptively weak."

Accounting at Coke - October 8, 1999. Phil Weiss. "Interestingly enough, if Coke had consolidated its bottlers in 1996 rather than accounting for them using the equity method, its return on equity would have fallen from 61% to 39%; its return on capital would have been 25% rather than the reported 37%. And its cash-to-debt ratio would have fallen dramatically. Additionally, if Coke was forced into consolidation accounting, it wouldn't have been allowed to announce, as income, its $363 million in earnings from the sale of equity investments in its bottlers in 1997. Those sales represented 6% of Coke's total earnings for 1997. In 1996, its equity sales amounted to fully 9% of the company's earnings."

Intangible Assets Plus Hard Numbers Equals Soft Finance - October 1999. Bill Birchard. "In the new economy, the most valuable assets have gone from solid to soft, from tangible to intangible. Instead of plant and equipment, companies today compete on ideas and relationships. Assets come in the form of patents, knowledge, and people. These kinds of assets are soft and squishy, and number crunchers and bean counters hate them. How do you assign a dollar value to an engineer's startup experience? How much is a personal network worth? How do you decide whether to finance a new internal project when its only assets are an idea and a team?" Note: this article deals with valuation rather than accounting; looking for the value of items not included on a balance sheet.

Back to the Future: What the SEC should really do about earnings management - September 1999. Stephen Barr. (This link is hopefully just temporarily unavailable as cfo.com reworks their web site.) "And then there are those who say the only way to stop earnings management is to render the quarterly earnings release obsolete. In fact, these forward-thinking accounting experts argue that most current rules and reporting practices have outlived their usefulness, especially with the emergence of new knowledge-based industries. They contend that layering on new guidelines and new disclosures only further encumbers a system whose artificiality encourages earnings management."

Options Overhang, Part I: Avalanche, What Avalanche? - August 18, 1999. Louis Corrigan. "According to First Call's Bob Gabele, the companies comprising the Nasdaq 100 index -- including giants like Microsoft and Cisco -- made options grants between 1994 and 1998 that will allow employees to buy a stunning 4 billion shares of stock. That stock was recently worth some $220 billion, or 9% of the Nasdaq 100's total market value."

An Ounce of Prevention - August 1999. Richard H. Gamble. "Companies that grant employees stock options are facing the wrath of institutional investors concerned about watered-down share values. Here are some innovative ways companies are tweaking options to soften the blow to current shareholders."

Outlook: Navigating Wall Street's earnings maze - July 15, 1999. Forbes. "The fact is "earnings expectations" are highly deceptive. Official earnings estimates are collected from industry analysts by companies such as First Call, I/B/E/S and Zacks Investment Research, which compile these figures into a "consensus estimate" that is widely reported by the media. But few people--not even the analysts themselves--believe these figures."

Drug-Company R&D: Pay Now, or Pay Later? - July 9, 1999. Amy C. Arnott. "...drug companies are required to charge their research and development costs as expenses as soon as they're incurred, even though it takes years of effort to discover, test, and refine new drugs before they make it to market. The costs involved can be huge. Pfizer, for instance, spent about $2.3 billion on research and development in 1998--close to 17% of its total sales. Without those R&D costs, its earnings would have been significantly higher."

Pay for Underperformance? Setting higher hurdles for stock option grants makes sense. But no one wants to be first - July 1999. Stephen Barr. (This link is hopefully just temporarily unavailable as cfo.com reworks their web site.) "Indexing has some very influential fans, including Federal Reserve chairman Alan Greenspan and investor Warren Buffett, as well as corporate-governance and compensation gurus. "As far as I'm concerned, no option program has any credibility unless it's indexed," says Nell Minow, a principal at LENS Inc., a money-managing firm in Washington, D.C. "Otherwise, we're just grading everybody on a curve. These are big boys. They don't need that."

All Earnings Are Not Created Equal - July 1999. John Price, R.I.A., Ph.D. "There is plenty of evidence that the growth rate of earnings is mean-reverting. This is a statistical term implying that if earnings have been growing at a high rate compared to the industry in general, their growth is likely to move towards the industry norm. Similarly, growth rates that are lower than the norm tend to rise."

IT to SEC: Wake up! - June 2, 1999. Paul Deninger. "But even if we accept that argument, the SEC's proposal remains flawed. Why? Because accountants measure overpayment by comparing the purchase price of the acquisition to the book value of the acquired company. But remember Rule No. 2: Book value is nearly meaningless for IT firms, because the bulk of their value is in intangible assets that don't appear on a balance sheet."

Balancing Act: Will a new accounting rule aimed at off-balance-sheet financing trip up Enron? - June 1999. Ronald Fink. "To understand what's at stake, consider its $2.3 billion acquisition last October of Wessex Water Plc, a U.K. water company. In a conventional deal, Fastow notes, Enron might have simply issued roughly equal amounts of equity and debt in its own name. But that would have immediately diluted Enron's earnings and added significant leverage to its balance sheet. To prevent that, Enron created Atlantic Water Trust, and issued $1.3 billion of Enron shares into it. The trust, in turn, went to the capital markets to raise $1 billion in debt against the shares. As a result, Enron experienced no immediate earnings dilution from the deal. And because Enron owns no more than 50 percent of Wessex, the $1 billion in debt isn't found on Enron's balance sheet."

Boots, the British drugstore chain, has broken the code of silence on the true cost of options to a company's shareholders - May 17, 1999. Justin Doebele. "Traditional option programs issue options on shares to employees but don't reduce the amount of shares outstanding by a corresponding amount. When the options are converted into shares, the company must increase its base of shares outstanding, thereby diluting earnings and other shareholders' proportional interest in the company. Yet the dilution, or the cost of correcting it, is not accounted for in the profit-and-loss statements."

Once Again McKesson Is Revising Its Earnings - May 17, 1999. David J. Morrow. "Among the center's concerns was how aggressively HBO booked sales from its long-term contracts. For example, in a 10-year contract for $10,000, HBO could decide that it had completed one-quarter of the contract's obligations and book $2,500 in revenues the first year. The only problem, the center said, was that HBO could collect only $1,000 that year, according to terms in the contract. While this practice is common among software makers, the center worried that HBO used it too often."

Commentary: Anatomy of a Shareholder Slaughter - May 17, 1999. Janet Rae-Dupree. "Even without such warnings, analysts should have been looking askance at HBOC. All its rivals were struggling because of cost pressures brought on by managed care--yet HBOC was going gangbusters. How? It kept up its 55% annual growth rate through acquisitions, a "roll-up" strategy that let it post great numbers without over-relying on its core business: producing software systems for hospitals and doctors."

Putting a Price Tag on Slippery Stocks - May 7, 1999. David Kathman. "Chris Davis of the Davis New York Venture Fund gave a Stocks 501 presentation in which he explained the concept of owner earnings, which he prefers over reported earnings in calculating P/Es."

Optionmania III: Takedown - May 7, 1999. Warren Gump. "Investors should be aware of numerous additional anomalies associated with options."

Optionmania II: Impact - May 5, 1999. Warren Gump. "Instead of expending cash to issue options, a company "prints" them by assuming the obligation to issue shares upon exercise. No cash changes hands at the time of issuance. Determining the market value of an option is an art, not a science. While current valuation techniques are quite powerful, the results are dependent on several assumed variables. In addition, the market is littered with securities trading at prices much different from their theoretical values."

Investing 501 with Chris Davis - May 4, 1999. Hap Bryant. "...Sealed Air is so open in its accounting of employee options that there's an 100% difference between GAAP earnings and "owner earnings."

Watchdogs or Lapdogs? - May 1999. Stephen Barr. (This link is hopefully just temporarily unavailable as cfo.com reworks their web site.) "Audit committees may not be as bad as the SEC thinks--or as good as they should be. Average number of audit committee meetings per year: 3.28. Percentage of companies with nonindependent directors: 26%. Percentage of companies that have an audit member with a finance background: 22%."

To Diversify or Not to Diversify - May 1999. Pat Terrion. Examples of overstated earnings, overstated revenue and pretax income, how depreciation practices affect earnings and also points out a positive - how to spot hidden value. To jump to the proper area of the document, click on the link, wait for the document to load completely, hit CTRL-F and enter do your.

Optionmania! - April 30, 1999. Warren Gump. "Accounting regulators have struggled determining the best way to account for options. On the one hand, they obviously have some value to the employee. On the other hand, companies don't expend cash when they grant options. If an employee exercises an option, the company just issues a new share of stock. Instead of a cash outflow, the company actually has an inflow of cash from the exercise price of the stock (although that inflow is less than what would be provided if the share were issued on the open market). The company is basically using its ability to issue shares as a way to print shares and sell them at below-market prices." First of 3 part series. See parts 2 & 3 in May 1999 articles above.

If the Numbers Look Fishy, Here's the Man to Call - April 26, 1999. Nelson D. Schwartz. "Pat Adams had a problem. As manager of the $117 million Berger Select fund, he'd watched shares of two big holdings--Sunbeam and Cendant--collapse last year after it became known that both companies had used accounting gimmicks to artificially boost their earnings."

Goodwill and GAAP - April 16, 1999. David Kathman "...lurking in the background are developments which may force investors to rethink the way they look at reported earnings."

Lucent's Loose Change: Are Earnings What They Seem? - April 14, 1999. Pat Dorsey. Explores "net pension credit" which in Lucent's case was over a half-billion dollars. Be sure to check the Lucent press release linked in the article.

3 Ways to Spot True Earnings Quality - April 2, 1999. Jim Jubak. "Recent research shows that the quality of a company's earnings is a better indicator of future earnings and future stock performance than the quantity of a company's earnings. High quality-of-earnings stocks tend to outperform the market."

Guilty As Charged - April 1999. Stephen Barr. (This link is hopefully just temporarily unavailable as cfo.com reworks their web site.) "The former CFO and CEO of California Micro Devices are going to jail. Others who commit accounting fraud may follow. Criminal prosecutions of accounting fraud require evidence that shows intent to cook the books. In CalMicro's case, there was plenty. At trial, in hundreds of exhibits of internal documents, the prosecution team outlined nearly a dozen revenue recognition tricks, including recording sales of orders that shipped in later quarters, early and unwanted shipments that were returned but whose sales were never reversed, and bogus sales to both legitimate and phony companies. The executives had faked reports to fool the auditors, investment bankers, and the board of directors, and had lied in SEC filings and to analysts to hide the chicanery."

American Stores Spent Its Profits On Stock Options - March 31, 1999. Phil Sahm. "American Stores Co. profits increased 37 percent in the fiscal fourth quarter of 1998. But rather than going to stockholders, the money paid for executive stock options."

What's Behind Tech Stock Prices? - March 15, 1999. Adam Lashinsky. "...perhaps in six to 18 months--new standards will be finalized. Until then, deciding what tech stocks are really worth will be tougher than ever."

Putting a spin on R&D - February 8, 1999. Zina Moukheiber. "But is Alza as profitable as it seems? It continues to pour a lot of money into R&D, only now those expenses are kept off the income statement. This clever maneuver was created with advice from Merrill Lynch."

Seeing is Believing - February 1999. Baruch Lev and S.L. Mintz. (This link is hopefully just temporarily unavailable as cfo.com reworks their web site.) "Despite increasing awareness that the value of knowledge assets now approaches or even exceeds the value of reported book assets, rulemakers in the United States have largely dodged the issue."

Gaps in GAAP - January 25, 1999. Bernard Condon. "Right now," says Steven Wallman, former commissioner of the Securities & Exchange Commission, "we take disaggregated data and have accountants aggregate it, only to have investors disaggregate it again."

Why good earnings aren't enough - January 21, 1999. Marius Meland. "He adds that analysts are much more likely to get punished if they're too bullish on a stock's earnings outlook than if they're too cautious. Also, they are under increasing pressure from fund managers and clients, giving them less time and resources to devote to in-depth research. As a result, a "herd mentality" sets in, perpetuating the consistent underestimation of earnings."

Microfraud? A Microsoft executive accuses the company of cooking its books - January 7 - 13, 1999. Mike Romano. "To grossly oversimplify, the setting of a reserve removes the amount of the reserve from Microsoft's reported income. Similarly, when the reserve is reversed it has the effect of increasing reported income. By setting and canceling reserves, Microsoft is able to control its reported profit and to keep its reported earnings on a smoother upward trend."

Plastic Profits - December 14, 1998. Bernard Condon. "Paying over book means Associates must amortize the resulting goodwill that appears on its balance sheet. But look at the terms: Associates plans to write it off over 34 years. In short that goodwill won't be off its books until 2033. We don't even know if many fixed assets like buildings will be around in 34 years, much less the Avco brand and its borrowers, says Yogesh Borkar, a banking analyst at money manager ValueQuest/TA. Half that time is still long but might be justifiable."

Misreporting Results - December 1998. Stephen Barr. (This link is hopefully just temporarily unavailable as cfo.com reworks their web site.) "The stock went up because management announced that the accounting disallowance would not hurt future EPS, says David Tice, an investment adviser based in Dallas. I have a hard time believing that. But it's like committing a crime, and if you're caught there's no real price to pay."

Letter to Mr. Lynn Turner, Chief Accountant, U.S. Securities and Exchange Commission - October 19, 1998. "For companies with significant fixed assets, depreciation is sometimes the largest contributing factor to earnings quality. Although companies disclose changes in depreciation method or estimated useful lives in the year of change, recall is short. Such disclosures may be ignored several years later even though the effects of such changes persist indefinitely."

Earnings Hocus-Pocus - October 5, 1998. Nanette Byrnes, Richard A. Melcher, with Debra Sparks. "But forget about fraud for now. Regulators and investors are starting to focus on a far broader problem: companies bolstering their performance by using every legal accounting game in the book. They appear to be exploiting opportunities to jazz up their earnings like never before--all without stepping outside the loose confines of generally accepted accounting principles (GAAP)."

Hear No See No Speak No Fraud - October 1998. Ronald Fink. (This link is hopefully just temporarily unavailable as cfo.com reworks their web site.) "The Cendant fiasco shows that in high-profile M&A's, due diligence takes a back seat. Whatever the ultimate outcome of CUC's accounting fiasco, the situation suggests that the pressure to do deals can make due diligence in high-profile mergers and acquisitions a sham. As such, it reflects the pressure that senior management is under to meet or exceed Wall Street's expectations. According to a recent survey of almost 100 chief financial officers by Business Week magazine, roughly two-thirds have been asked by senior management to misrepresent results."

The earnings of the companies you invest in may not be as high as you think they are - September 16, 1998. Rika Yoshida. "If a company grants a lot of stock options to employees, the earnings it reports are almost certainly understating its compensation expenses."

The Auditors Are Always Last to Know - August 17, 1998. Herb Greenberg. "You can't help but wonder in the wake of recent high-profile messes--from restatements to write-offs and losses at Boston Chicken, Sunbeam, Waste Management--not to mention the accounting meltdown that's devastated Cendant. What's so troubling is that short-sellers and accounting gadflies have long questioned the very accounting issues that tarnished the image of each of these companies. Yet each company's financial statements had been prepared according to generally accepted accounting principles, or GAAP, with the blessings of outside auditors."

Code Blue. How a Hot Medical Stock Blew Up - June 22, 1998. Andy Serwer. "Ordinarily a company would have netted out the $55 million from the $197 million purchase price, making the true acquisition cost $142 million, says Schilit. Instead, FPA chose to recognize the $55 million as revenue, which caused me to do a double take."

Just When You Thought It Was Safe To Go Back Into The Water - June 20, 1998. John Price. Multi-part series. "If we know that the executives of a particular company claim that these expenses should not be included in the profits of a company, are they being open and frank with the public in other areas? ...Perhaps we are witnessing the secret of perpetual wealth. If a company gave options to every person in the world which they could because, as they say, it is no expense to them, the problem of poverty could be eliminated."

AOL on the Street: Anything Goes! - June 3, 1998. Jim Evans. "The Internet group of companies is doing business in very new ways that have not been tested in terms of business norms and accounting. We really are out there on the cutting edge having to pioneer new territory."

Corporate Deception And The End of The Bull Market - June 1998. Stephen Porter. "The accounting treatment for options is only one of the tricks corporations are using to inflate earnings. For example, Forbes says that Kellogg's has taken "one-time charges" nine times in the past 11 quarters."

The great bull market in stocks and options - May 18, 1998. Gretchen Morgenson. "Stock options weren't always the way to wealth for CEOs. Not long ago, cash was king and options rare."

Stock Options Are Not a Free Lunch - May 18, 1998. Gretchen Morgenson. "Nobody loves a party pooper, but hasn't anyone noticed that generous stock option plans result in an overstatement of corporate earnings and a heavy mortgage on the future?" Note: article had an error - "Hewlett-Packard earned $2.6 billion in 1996, not $586 million, and would not have shown losses after adjusting for stock option expenses as we reported in "Stock options are not a free lunch". Bristol-Myers Squibb and Eli Lilly's options-adjusted earnings also were not negative. They should have read $2.2 billion and $1 billion, respectively, to reflect stock splits. -ed."

Forget the Annuals, Read Proxies - May 4, 1998. Martin Sosnoff. "If you're not a security analyst or money manager with a broad knowledge base covering a range of industries, forget about annuals and concentrate on the proxy statement. It ain't pretty; it's written in legalese, and in small type, but that's the point. It contains lots of stuff the company is required to tell you but would just as soon you did not notice."

Pick a Number, Any Number - March 23, 1998. Bernard Condon. "It's getting to the point where reported earnings in many cases are whatever management wants them to be. If you overstate, no sweat. Just take a writedown later."

To Catch a Thief - March 23, 1998. Bernard Condon. "Cash flow is the single best way of catching companies heading for trouble," says Howard Schilit, head of the forensic accountancy Center for Financial Research & Analysis. You want to see cash flow and net income tracking together."

Not Everybody's Doing It - March 23, 1998. Bernard Condon. "In an environment full of temptations for fancy bookkeeping, there are a few Boy Scouts. One is $5 billion (sales) VF Corp., maker of Lee and Wrangler jeans. VF announced last year that it would cut 2,000 positions and consolidate 17 separate offices into 5 operating groups. Cost: $400 million. It could have simply debited this cost to retained earnings (as most companies do under similar circumstances), but VF bravely faced the music. It decided to debit most of the sum to 1997 and 1998 earnings. Explains Gerard Johnson, VF's chief financial officer: "Restructuring is an invention by Wall Street. It's a term for covering up debits. We don't play that game. It's shortsighted. It delays the inevitable."

To Have And Have Not - March 1998. Michelle Celarier. (This link is hopefully just temporarily unavailable as cfo.com reworks their web site.) "Companies have long had it both ways on stock options. But now they must show what these incentives cost and how much dilution they cause. The combination of overstated earnings and dilution from currently exercisable options distorts actual earnings per share. As Thomas McManus, a Katonah, New Yorkbased independent U.S. equity strategist, puts it, "Reported earnings are fantasyland compared to these real obligations."

New Earnings Per Share - January 21, 1998. Louis Corrigan. "Yet corporate profits are really a kind of fiction created by the Financial Accounting Standards Board (FASB) and collectively perpetuated by investors."

Accounting for Stock Options: Fictitious Earnings? - July 18, 1997. Five part series. Louis Corrigan. "Earnings are everything, the solid reality of the bottom line that we use in our financial models to determine a company's value. Yet they are also mere fictions, tales that we've all agreed to believe as long as they follow certain widely accepted conventions."

Sipping The Fizz In Coca-Cola's Profit - May 1, 1997. Roger Lowenstein. "...managing the numbers is merely a theft against perceptions, for it masks the reality of shifting trends with the illusion of smoothness. ...Coca-Cola, like some others, has struck an implicit bargain with Wall Street: It pretends that its profit growth is smooth, and the Street pretends not to notice that it isn't."

Learn To Play The Earnings Game... - March 31, 1997. Justin Fox. "With industries that haven't been in the market before, you tend to see a lot of monkey business because accountants, even if well intentioned, don't know what the standards are...Underwriters of small companies and people who make a living doing IPOs are very conscious of the market's inability to see what the correct measures are...Add that confusion to the general cacophony of accounting quirks and judgment calls in financial statements, and you begin to realize that earnings are nothing but a vague, approximate measure anyway."

Accounting for Twinkies - February 24, 1997. Peter Huber. "A stock's price is the market's estimate of the true value of a company's capital-hardware, software, worker training, ingenuity, the lot. Last year's net earnings, by contrast, are creations of government-approved tabulators, whose Twinkie-toaster calls make all the difference between black and red."

What's So Good About Goodwill? - February 10, 1997. Mike Porter. "Because of the numerous and varied acquisition-accounting regulations, the acquiring company would love to be able to give different definitions of its actions to the taxman, investors, and analysts. Alas, they must settle on just one."

Reality Bites: How well Do Reported Numbers Represent True Economic Reality - November 12, 1995. J. William Gurley. "The concept of earnings quality can be reduced to the following three elements - forecastability, comparability, and how well reported numbers represent true economic reality."

Gain Without Pain - April 1993. Michael Rothschild. "The zero-sum, double-entry mindset that controls the thinking of FASB's and Machine Age politicians simply cannot cope with the positive-sum, wealth-creating economics of Information Age capitalism. They simply cannot understand that new wealth comes out of no one's pocket; that there can indeed be benefit without cost, income without expense."

GE's Glowing Numbers - No date. Jon Birger. "Investors know that General Electric posts great earnings. How it happens is more of a mystery--and it isn't always pretty. No company, not even one as well managed as GE, has 100 quarters of uninterrupted growth without resorting to some fancy accounting -- or, as the mannered folks on Wall Street like to call it, earnings management. "A hundred consecutive quarters? Let's just say there's a very low probability of that ever occurring in nature," says Jay Huck, a forensic accountant with the Center for Financial Research & Analysis in Rockville, Md."

The Amazing Stock Option Bubble - Web site. Manitou Investment Management Ltd. "The more extreme critics of stock options have suggested launching a class action law suit against the management and directors of companies who use stock options to materially overstate their profits. These critics point out that, in Canada, paying cash bonuses based on stock price appreciation is more tax-effective, and therefore the only possible reason for a profitable company to institute a traditional stock option plan is to overstate profits. By hiding the option cost, option recipients receive compensation far greater than they could expect if the costs were fully reported."

Accounting for Restructuring Charges - Web site. Melissa Johnson. "When Disney acquired Capital Cities/ABC, it created what amounts to an undisclosed reserve of as much as $2.5 billion to absorb costs and expenses incurred subsequent to the February 9, 1996, close of the merger-costs that otherwise would have flowed through its income statement and reduced Disney's reported earnings. It was able to do this by accruing the restructuring costs related to the merger. This means that in the year of the acquisition, Disney took "The Big Bath."

Accounting For Goodwill And The Urge To Merge - Web site. Lyne Paquette. "AT&T's $7.5 billion merger with NCR was done under the pooling of interests method and no goodwill was created. Had the purchase method been utilized, AT&T would have put onto their books as much as $5.7 billion in goodwill. If that goodwill had been amortized over 40 years, it would have reduced AT&T's earnings by more than $143 million a year."