Posted on 03/21/2016 8:50:20 AM PDT by upbeat5
Almost all of the companies in the S&P 500 (^GSPC) have announced their quarterly earnings, and now Wall Street’s number crunchers are finalizing their conclusions as to what actually happened during the last three months of 2015.
Unfortunately, it’s become an increasingly challenging task to understand the true financial performance of the big publicly traded companies because of the widening of something called the “GAAP gap.”
Don’t worry: this topic isn’t as scary a concept as it sounds. In a nutshell, there’s a standard known as generally accepted accounting principles, or GAAP, which encourages some uniformity in how companies will report financial results. Unfortunately, the strict standards of GAAP often force companies to report big one-time, non-recurring items that will distort quarterly earnings, in turn making them a poor reflection of underlying operations. And so, many companies will make adjustments for these items and separately report adjusted or non-GAAP financial results. (Read more about it here and here.)
All of that’s well and good. But there’s an unsettling trend we’ve been witnessing: the gap between GAAP and non-GAAP numbers is widening. Specifically, this “GAAP gap” is widening in such a way that more and more costs and expenses are being removed to make underlying profits look higher.
(Excerpt) Read more at finance.yahoo.com ...
Have you seen “The Big Short?” Holy cow. Even understanding its bias, and even though they let low-level borrowers completely off the hook, the collusion between Moody’s and the other credit rating organization was utterly corrupt.
The trend to IMIU accounting is creeping from China to the west coast. IMIU accounts buried in the balance sheet produce good looking results
IMIU’s are I Made It Up accounts
Companies are required by law to report GAAP numbers. As an investor, those are the numbers you should understand and use. Anything else is just a sales pitch.
I, too, would be very well off if I didn’t have to pay interest or taxes, and not replace anything that wears out. But that is not reality.
Well written!
What you describe is clearly illegal under Sarbanes-Oxley, and if a US company does it, the CEO and the CFO will be sent to jail.
In an April 3, 2010, op-ed for the The New York Times, Burry argued that anyone who studied the financial markets carefully in 2003, 2004, and 2005 could have recognized the growing risk in the subprime markets.[11] He faulted federal regulators for failing to listen to warnings from outside a closed circle of advisors.[11][9]
Wall Street and the Commerce Department are both trying really, really hard to keep the disaster under the rug until November 15 in order to elect Clinton.
They also let the government off the hook for mandating all the loose lending. But yes, great movie.
This is what the Obama Administration will be best remembered for in the history books. For absolutely destroying the credibility of economic statistical data.
“Companies are required by law to report GAAP numbers.”
Required to but not enforced. There is plenty of wiggle room even in GAAP to fudge numbers grossly.
“Companies are required by law to report GAAP numbers.”
Keep in mind GAAP stands for ‘generally’ accepted accounting principles. The generally in the statement has a very broad meaning for recording an accounting transaction; anywhere from textbooks, industry standard, what others are doing in similar situations, trade journals, I heard it done this way while in a bar.
It's a frightening trend. It wasn't so long ago that financials from the Chinese were universally considered a joke punch line.
Now they're becoming a standard?
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