When investors see companies such as JDS Uniphase declare a $51 billion dollar loss, its perception of such losses can lead to a state of no-confidence in the financial markets overall. Many savvy investors knew enough to not use goodwill as any part of the analysis when considering whether to invest in certain companies (or not), but there are plenty of investors that are not savvy. These individuals may see the resulting changes in net income for companies such as AOL as signals to buy, instead of what the signs really are, which are signals to sell.
Many analysts believe the same way and have been attempting for years to get the FASB to set higher standards, while demeaning companies attempts at obscuring the true costs of their acquisitions.
"It's just cosmetics," sneers Prudential Securities analyst Ed Keon. But in a battered market searching for any sliver of hope, investors may unwittingly forget and rush in to buy. Keon's advice: Sell. If companies soar in value for the sole reason of this accounting change, I would take advantage of it and sell those stocks" (Galarza 2003).
Observing the events that have occurred since the implementation of this rule, the rule has had the effect that was initially stated.
"Previous standards provided little guidance about how to determine and measure goodwill impairment, as a result, the accounting for goodwill impairments was not consistent and not comparable and yielded information of questionable usefulness" (FASB 2001).
Companies are now required to test goodwill yearly for impairment along with other specific guidance (provided by FASB) on the testing process for impairment. The process for the testing is a two-step process beginning with the estimation of the fair value of a reporting unit. The first step that a company should take is to...
FASB Accounting Rules Did FASB 157 Cause the Financial Crisis? Since the financial crisis began in February 2007, there has been an ongoing debate in the financial community over the causes of the crisis. One target that has come under fire for its role in the financial meltdown is FASB 157, which created new rules for valuing mortgage-related assets. Wall Street analysts and others blame 157 for implementing mark-to-market accounting standards. They
FCC's recent rule changes regarding broadcast ownership in the United States. Specifically, it will discuss the FCC rule changes, and explain what is involved, the arguments on both sides of the issue, and the relative relationship and authority between the FCC and congress in this dispute. The FCC's new rule changes were initially mandated by the Telecommunications Act of 1996, and have created a storm of controversy since they
However, they have also changed the face of the accounting profession in a way that will affect the education and conduct of accountants in the future. In the future, the accountant will have to do more than to balance the books. In order to understand the potential educational requirements for accountants in the future, we will examine how they have changed historically and then apply the changes that have
The balance sheet presents the three elements of financial position namely, assets, liabilities and equity. The balance sheet highlights the accounting equation which provides: Assets = Liabilities + Equity. In a balance sheet presentation, assets and liabilities are further classified into current and non-current to distinguish those used directly for operations as to those for long-term usage. An income statement is a formal statement prepared for a given period
By re-characterizing the Repo 105 dealing as a sale, Lehman detached the account from its balance sheet (Durden, 2010). Lehman frequently augmented its utilization of Repo 105 transactions in the time previous to reporting interludes to decrease its openly reported net leverage and balance sheet. Lehman's intermittent reports did not reveal the money borrowing from the Repo 105 transaction, even though Lehman had in reality borrowed tens of billions of
Accounting Concepts Revenue Recognition: Its Relevance and Significance In the words of Kimmel, Weygandt and Kieso (2008), "the revenue recognition principle requires that companies recognize revenue in the accounting period in which it is earned." Unlike is the case in the cash basis of accounting, revenue under the accrual accounting basis is recognized on the sale of a certain commodity or the performance of a given service. Under the cash basis
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