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That is
the key element to take away from the ENE, WCOM etc
announcements.......
ENE and
WCOM flat out LIED about the health of their company.
They LIED about EPS via avoiding GAAP accounting or
manipulating it to the nth degree.
There
are lots of ways to LEGALLY massage EPS results.
1)
Receivables
2)
payables
3)
doubtful accounts
4)
financing
5)
sale/leasebacks
6)
promotional campaigns
7)
Pension Funding
While
the above are legal ways to manipulate EPS results they
can dramatically alter a company’s EPS, thereby making
current earnings not reflective of the company’s true
earnings capabilities.
The big
difference between lying and manipulating is the law.
The difference between manipulating and GAAP is the
“spirit of accounting,” where you are supposed to
present a picture of the company’s true operating
performance.
So,
while many people may break the “spirit of the law” or
the “the spirit of accounting,” most typically get
into hot water, get fined but avoid jail time
The
above are the obvious ways to manipulate EPS
results. International
companies have many more ways to manipulate results, which
gets even greyer....
1)
partnerships
2)
shells
3)
consolidation of foreign results
4) lots
of tax stuff due to different rates
The
above are just the obvious ones.......
A key
element to remember is that tax avoidance is different
from tax evasion. The
IRS hates both but they can only prosecute the 2nd
version. Tax
avoidance is legal.
The
above are very legal and the international examples are
VERY subjective and can be used unlawfully very easily.
Massaging
the #'s is legal. How
far you take it isn't.......
Accounting
is lots of gray and less black and white than people
think. The key
element is the "spirit of the law" and the
"spirit of full disclosure," which are tougher
to prove in a court of law.
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