6 ms·
Downturns are accounting crooks’ worst enemy
- tick_tock_tick 6y agoWhat a horrible article most investors understand Chinese companies lie about their number all the time. The non Chinese example is WeWork which was completely rejected by the market and failed to go public?
- surfmike 6y agoAnd was rejected before the current crises.
- grey-area 6y agoThis downturn started last year.
- gandalfian 6y agoAnd 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.
- thesz 6y agoBy referring to large green gemstone, do you refer to The Hot Rock novel main plot goal? If so, it is unbelievably appropriate.
- neximo64 6y agoWhat’s this gemstone company?
- gandalfian 6y agoTurns 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 https://www.google.com/search?q=Gem+of+Tanzania
- IAmEveryone 6y agoYes, the S&P500, that very Chinese index...
- neonate 6y agohttps://archive.md/xEhMd https://archive.md/xEhMd
- deleted 6y ago[deleted]
- thih9 6y agoSadly I can’t read it (mobile safari, private mode), I’m being asked to create an account.
- gandalfian 6y agohttps://outline.com/FPGgpv https://outline.com/FPGgpv
- netsharc 6y agoIs that the 2nd page? It doesn't start with the story about Madoff like in the original.
- gandalfian 6y agoYup, sorry it clearly didn't work. Hope it is not broken. http://webcache.googleusercontent.com/search?q=cache:https://www.economist.com/business/2020/04/18/the-economic-crisis-will-expose-a-decades-worth-of-corporate-fraud http://webcache.googleusercontent.com/search?q=cache:https:/...
- Rexxar 6y agoOn firefox you can just switch to reader mode and reload the page.
- _Microft 6y agoIf Firefox does not offer reader mode by itself, prepend about:reader?url= to the url to force loading the page in reader mode by the way.
- exhilaration 6y agoThanks for the tip. I'm curious, do you know how some sites prevent the reader mode button from appearing?
- Tehdasi 6y agoThe Bezzle, which I think has been on a HN post before: https://klementoninvesting.substack.com/p/the-bezzle https://klementoninvesting.substack.com/p/the-bezzle
- Havoc 6y agoWorth 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
- lotsofpulp 6y agoUS 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 politicians and current and near future recipients of defined benefit pensions to transfer the costs to future future taxpayers.
- perl4ever 6y agoIt 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.
- jmaa 6y agoThanks. It is easy to forget how much reporting is specifically about the US, and that a lot of the rest of the world doesn't really have the same problems.
- CapriciousCptl 6y agoI 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 your revenue recognition policies affecting your revenue by a few percent, the SEC comes down on you hard. KHC was an example of that last year or maybe 2 years ago with the new rules in ASC606. It was news to me that IFRS cracked down on non-GAAP adjustments, particularly because I follow some foreign filers in the US and haven't noticed much of a difference. But then again, I don't follow a lot of companies with the type of management that harps on EBITDA and adjusted EBITDA anyway. According to Charlie Munger, "I think you would understand any presentation using the word EBITDA, if every time you saw that word you just substituted the phrase, “bullshit earnings.”
- Proven 6y agoGovernments seem completely unaffected and have even upped their game of stealing from the responsible, savers and children. Superior, if merciless, crooks.
- nknealk 6y agoFor 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-non-gaap-measures 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/1533523/000119312519220499/d781982ds1.htm https://www.sec.gov/Archives/edgar/data/1533523/000119312519...