Fantasy accounting: how the biggest companies in America turn real losses into paper profits


#1

[Read the post]


#2

And then the taxman comes around and those magic profits suddenly turn back into massive losses. Pretty good trick indeed.


#3

I got my accounting degree in 2014, and I had some older professors that really dug into how companies do this. It did not inspire confidence in any of these big companies financial statements.


#4

The biggest problem is government accounting.

Namely leaving off massive liabilties from their balance sheet reporting.

In the process they turn assets into profits, then spend the profits. The liabilities are still there.

It’s pensions.

ie. X contributes money to the state for their retirement.

The state has the asset, the cash, and owes people the pension.

Now the state spends the cash. Assets zero, liability unchanged, so that is a loss on taxpayer’s equity.

But governments can’t tell people they are up shit creek in their old age. So book the cash as profit, spend it, leave the liabilities off the books.

When the debt duck comes home to roost, you’re long gone.


#5

The problem isn’t that there is no money. It’s the government. Especially if we are talking feds, we don’t have a problem there. The problem is where our elected officials want that money to go. As a country, our officials have consistently cut down on the programs, like pensions, and kept huge amounts of funding for defense projects, etc. It’s about priorities. The money is definitely there.

It leaves me much more concerned about the corporations that refuse to pay their employees, and loose pensions as well.

I work in an accounting field that is government related.


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#6

Why is the SEC stop enforcing them, in the aftermath of the 2008 Global Financial Crisis?


#7

But think of all the shareholder value these imaginary numbers have created! And the only people who’ll be hurt are the employees, when the company collapses. It’s win-win!


#8

Well, value for the current shareholders at least. We can be sure the insiders will be well clear by the time the house of cards begins to tumble.


#9

Be nice if I could use this same trick on my taxes. But of course, I’m not a huge ‘job creator’ so I can’t do that.


#10

IBGYBG, mk II.


#11

Job Creating is a state of mind. I reformed my corporate structure, and cut the fat to send a message to Wall Street (between Elm and Cordoba Avenue) that the family was open for business.
Sure, it hurt, cutting one of the kids and the family dog from the rolls, but in the long run the pain will be worth it. Plus, we re-leveraged the house, cleared out the wife’s 401k, and bought a boat!


#12

Living the MURCIA! dream!!


#13

I think there have been more than two iterations.

To make an unwelcome connection to the current political cycle, we are seeing two ‘insurgent’ candidates (of wildly divergent legitimacy) who are running on the ‘you are being ripped off by these jerks’ platform against various bought and paid for suits who intend to keep the shell game going as long as they can.

There will be a crash, probably a really big one and not where people are expecting it (the bond market is long overdue for a major crash). But the carnage will be widespread, and I have little doubt these companies will be a a part of it.


#14

It’s all mathamagic.


#15

At least the cheese pig only gets eaten?


#16

That, or leveraging it.


#17

It’s that we stopped taxing it.


#18

Lack of enforcement capabilities. Kind of like how the IRS has less and less enforcement capabilities lately.


#19

Stopped taxing the big piles.


#20

They also do the opposite, often at the same time. It’s interesting how many companies are simultaneously raking in the cash, barely scraping by or outright losing money, depending mostly on whether they’re talking to an investor, creditor, tax agent, fending off a hostile takeover, etc.