December 2, 2021

Accounting News Roundup: Buffett’s Nightmare, Musk’s Drama, AmTrust’s Probe | 05.07.18

Buffett Accounting ‘Nightmare’ Fuels First Loss in Nine Years [Bloomberg]
Although new rules that require unrealized gains and losses from equity investments “will produce some truly wild and capricious swings in our GAAP bottom line,” Uncle Warren recommends looking at Berkshire Hathaway’s operating income as “a better barometer” of the company’s performance. It increased 49 percent to $5.29 billion in the first quarter.

Tesla’s Numbers Are Even More Dramatic Than Its CEO [WSJ]
The bond price, net working capital, and free cash flow, among other metrics, are not looking so hot.

See also: Elon Musk trolls Warren Buffett

AmTrust Has Been Under an SEC Investigation for Five Years [WSJ]
We’ve noted stories about AmTrust that have included auditor spying and a beautiful woman laughing at bad accounting jokes, and all this has been going on while the company has been under an SEC investigation for 5 years. The company finally disclosed this fact last week, with a bleak outlook: “AmTrust said it can’t predict when or how the inquiry will end or whether it could have a material impact on the company.”

Previously, on Going Concern…

On Friday, I wrote about EY’s settlement with a now-former partner over its failing to act on her sexual misconduct complaint against an also-now-former partner.

In Open Items, someone is asking about federal jobs.

From the archives: Deloitte Manages to Tone Down Its Response to This Year’s PCAOB Inspection Report

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1 Comment

  1. I agree with Buffett’s view. This new accounting rule, requiring Available-for-Sale securities’ unrealized gains and losses to be included in net income, will lead to wild swings in net income. As the market (Stock market and Bond market) goes through up and down cycles, so too does the fair value of these Available-for-Sale securities (stock and debt securities). Therefore, there will be wide range amounts for unrealized gains and losses. As a result, net income will be greatly affected, leading to wild swings. Also, profitability ratios will be greatly affected. The smart investment analysts will take out these Available-for-Sale securities’ unrealized gains and losses to normalize net income for investment analysis. FASB needs to make up its mind. If I remember correctly from college, the reason FASB decided to require that Available-for-Sale securities’ unrealized gains and losses be EXCLUDED from net income (I believe it was the early 1990s when the rule was made) was because it would lead to large net income volatility and affect performance measures. Now, FASB is saying that INCLUDING these unrealized gains and losses in net income would be a better measure of a company’s performance. Jeesh, make up your mind. The same thing is going to happen just like when FASB changed the rule about financial liabilities’ recognition. In about 2007, FASB introduced the Fair Value Option rule for financial liabilities’ recognition. As a result, companies that chose the fair value option started to record wild swings for unrealized gains and losses. This in turn caused net income to be volatile for these companies. Sorry for the long post. I’m a technical accounting geek!

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