Joined: 08 Jul 2003
Posts: 6309
| Posted: Mon Oct 26, 2009 12:00 am Post subject: Accounting Tricks of the Corporate types | |
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http://www.businessweek.com/magazine/content/09_44/b4153000349169_page_2.htm
Another excellent article from BusinessWeek Magazine for Oct 2009 on some of the accounting tricks corporations use to manipulate their balance sheets. I keep on thinking of all the unearned revenue at Sears/SHLD which has remained fairly steady at about 1.1 Billion dollars a year for half a decade at this point. Unearned revenue is where the PA$ go until the PA is used or taken as income on a partial basis year by year. They talk about accrual accounting where many a company seems to use to play with the numbers. Now how can unearned revenue remain constant and yet sales are tanking at a double digit rate? Last edited by dictators_rule on Mon Oct 26, 2009 6:06 pm; edited 1 time in total |
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Joined: 28 Apr 2005
Posts: 2174
| Posted: Mon Oct 26, 2009 4:39 pm Post subject: Re: Accounting Tricks of the Corporate types | |||
Yeah it is weird. Since PA standards are calculated as a percentage of sales, the total dollars in unearned revenue should decrease along with sales. Total unearned revenue can only stay constant if they are increasing pressure on the salespeople and bumping up the percentages. They are highly motivated to keep this number up, because unearned revenue becomes profit as time passes. |
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Joined: 08 Jul 2003
Posts: 6309
| Posted: Mon Oct 26, 2009 6:12 pm Post subject: banking on it | |
| One of the only things I can think of is that if a company keeps unearned or accrued revenue artificially high then down the road they can show some miscellaneous income-sorta like an ace up their sleeve. It's almost like a fake bank or pile of money to pull from. | |
Joined: 04 Mar 2008
Posts: 217
| Posted: Tue Oct 27, 2009 12:04 am Post subject: | |
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Modern version of "chasing the ace".
Only item missing is the card table. |
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Joined: 16 Jul 2008
Posts: 46
Location: Pa.
| Posted: Tue Oct 27, 2009 2:50 am Post subject: | |
| They should take some of that unearned income and restore the company contribution to our 401K. | |
Joined: 28 Apr 2005
Posts: 2174
| Posted: Tue Oct 27, 2009 4:24 pm Post subject: Re: banking on it | |||
That's exactly right. It's guaranteed reportable income in the future, especially important when future sales declines are nearly certain. It's a PA for the shareholders.... 
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Joined: 06 Jul 2003
Posts: 8380
Location: Central CA
| Posted: Tue Oct 27, 2009 4:42 pm Post subject: | |
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It's a scam... it may not be illegal, but lots of scams are legal. Doesn't mean they aren't scams.
The man everybody thought was the living personification of God almighty when it came to things financial is nothing but another scam artist doing his part to make the economy strong for the one percent of Americans who really count. |
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Joined: 08 Jul 2003
Posts: 6309
| Posted: Wed Oct 28, 2009 5:56 am Post subject: scam / loophole | |
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SEC/Cox blew the more obvious stuff so I guess we can't expect them to catch aggressive accounting abuse.
My thing with Sears UnEarned revenue is exactly what I said before and that is the unearned revenue isn't changing in a logical proportion to sales. Example in 2004 Sears & Roebuck's last year there was $31.2 billion sales and $1.08 billion in unearned revenue. In 2008 Sears had $25.3 billion in sales which is a 19% decline in sales since 2004. In 2008 SHLD(the combined total of Sears and Kmart) had $1.06 billion of unearned revenue which is a 1.9% decline in unearned revenue. And the total raw unearned revenue $ or numbers have been steady since the ESL take over. In 2004 Sears had/left $1.08 billion in unearned revenue. SHLD unearned revenue: 2005: $1.04 billion 2006: $1.07 billion 2007: $1.12 billion 2008: $1.06 billion Either Kmart unearned revenue & gift cards offset a Sears decline in unearned revenue since it's not noted in the SHLD SEC filings or increases in PA prices did indeed offset sales declines. But I still think that 1 Billion number is too consistent for a business that has been more than inconsistent. *From Sears & Roebuck and SHLD SEC 10-K filings from 2004-2008. |
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Joined: 28 Apr 2005
Posts: 2174
| Posted: Wed Oct 28, 2009 5:32 pm Post subject: Re: scam / loophole | |||
It sure would be nice to be able to see the PA results directly instead of having to make inferences from the unearned revenue account. How much have PA prices and pressure on salespeople increased from 2004-2008? As usual they get what they focus on. Sales plummet while PA percentages look great. If PA/unearned revenue percentages were enough to keep the business alive, Sears would be in great shape today. The accounting authorities really need to do something about these gaps in the PA reporting rules. Retailers are able to hide a lot of important information. |
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Joined: 03 Mar 2005
Posts: 1646
Location: Michigan
| Posted: Thu Oct 29, 2009 3:10 am Post subject: | |
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What's so wrong with it? Our government has FOUR sets of books going right now. Can't remember the guy's name but he did the same thing Eddie's hand-picked CFO did -- washed his hands and walked away so he couldn't be targeted later on.
How can the government prosecute you if they're doing the same thing? Besides, a little "campaign donation" should set things right, like in Chicago ....
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