I Heart T.J. Rodgers
From bashing nuns to bashing accountants,
T.J. Rodgers is my man:
The errors and misrepresentations can get extreme. Ian Cockwell, CEO of
Brookfield Homes, was reported as "earning" a negative $2.3 million in 2007
in his company's proxy statement. It seems that some of the "income" from
prior years, which he never took home, did not materialize according to
FASB's one-size-fits-all formula and had to be subtracted from his 2007
What do you get when you merge two identical companies [each] valued at $2
billion, with $1 billion in real assets and $100 million per year in profit?
Don't say the resulting company is valued at $4 billion with $2 billion in
real assets and $200 million in profit. That would be too rational.
The answer, according to FASB, is a company valued at $4 billion with
$3 billion in assets — one-third of them intangible — and zero profit.
In a recent review of potential acquisition candidates, I noted an obvious
error in the financial analysis of one very good target company. Its
financial statements showed the company nearly breaking even, when I knew
that it consistently produced 20 percent pretax profit. The disconnect came
from the fact that the young MBA doing the analysis used GAAP financial
statements that included all the accounting distortions described above. We
adjourned the meeting until a useful analysis could be completed.
I loved it. Nothing more to add.