4 ms·

Interesting accounting magic indeed. It seems like tricks like this make it remarkably easy to game stock price. Are there any controls on this?

paxys 3y ago
The controls are that if 4 years from now they decide that the servers need replacing after all and take a write-down then shareholders have a very solid case to sue the company.
- thorncorona 3y ago
  Is it not possible to go back in 4 years and explain in 4 years that the market is more competitive than expected?
  - deleted 3y ago
    [deleted]
- xur17 3y ago
  How does suing a company work? Is it functionally just like a forced dividend, or is it more complicated than that?
  - paxys 3y ago
    It's like any other class action lawsuit. Nothing to do with a dividend.
    - xur17 3y ago
      But if it's the stock holders that are suing the company, and they are receiving compensation from the lawsuit based on the size of their holdings, it's a cash payment from the company to the holders, which is exactly what a dividend is.
      - paxys 3y ago
        Not all stock holders will be part of the lawsuit, and some non stock holders (say people who have already sold) can be part of the lawsuit. There can also be people who claim second and third degree damages without actually holding any stock. And there is no rule that compensation has to be in proportion to anyone's holdings. All of this will be up to the court to decide.
  - james_in_the_uk 3y ago
    The latter. It is functionally closer to a speculative investment. Litigation is expensive and notoriously uncertain.
- dkjaudyeqooe 3y ago
  That's very unlikely. In each case the change would be backed by an analysis which justified the change, nefarious intent would be pretty difficult to prove.
james_in_the_uk 3y ago
Not an accountant but I assume that standards such as GAAP and IFRS cover this?
local_issues 3y ago
No, because they're balanced over time. It's when you don't make the charges that this becomes stock manipulation. Not writing down investments is how Enron committed it's mark-to-market fraud.
dkjaudyeqooe 3y ago
It's not accounting magic at all. A $1000 server with a 4 year life span is expensed at $250 a year. A $1000 server with a 6 year life span is expensed at $167 a year. You convert your server lifespan from the former to the latter you get $83, or 33%, savings a year. If you (intend to) keep your servers for 6 years and do not make this adjustment, then you're doing a false accounting, not the other way around.
deleted 3y ago
[deleted]

paxys 3y ago

The controls are that if 4 years from now they decide that the servers need replacing after all and take a write-down then shareholders have a very solid case to sue the company.

thorncorona 3y ago
Is it not possible to go back in 4 years and explain in 4 years that the market is more competitive than expected?
- deleted 3y ago
  [deleted]
xur17 3y ago
How does suing a company work? Is it functionally just like a forced dividend, or is it more complicated than that?
- paxys 3y ago
  It's like any other class action lawsuit. Nothing to do with a dividend.
  - xur17 3y ago
    But if it's the stock holders that are suing the company, and they are receiving compensation from the lawsuit based on the size of their holdings, it's a cash payment from the company to the holders, which is exactly what a dividend is.
    - paxys 3y ago
      Not all stock holders will be part of the lawsuit, and some non stock holders (say people who have already sold) can be part of the lawsuit. There can also be people who claim second and third degree damages without actually holding any stock. And there is no rule that compensation has to be in proportion to anyone's holdings. All of this will be up to the court to decide.
- james_in_the_uk 3y ago
  The latter. It is functionally closer to a speculative investment. Litigation is expensive and notoriously uncertain.
dkjaudyeqooe 3y ago
That's very unlikely. In each case the change would be backed by an analysis which justified the change, nefarious intent would be pretty difficult to prove.

james_in_the_uk 3y ago

Not an accountant but I assume that standards such as GAAP and IFRS cover this?

local_issues 3y ago

No, because they're balanced over time. It's when you don't make the charges that this becomes stock manipulation. Not writing down investments is how Enron committed it's mark-to-market fraud.

dkjaudyeqooe 3y ago

It's not accounting magic at all. A $1000 server with a 4 year life span is expensed at $250 a year. A $1000 server with a 6 year life span is expensed at $167 a year. You convert your server lifespan from the former to the latter you get $83, or 33%, savings a year. If you (intend to) keep your servers for 6 years and do not make this adjustment, then you're doing a false accounting, not the other way around.

deleted 3y ago

[deleted]