Balance Sheet Shenanigans


Herb Greenberg nails a glaring issue in balance sheet shenanigans:

“Let me tell you what drives me nuts: The lack of standardization in the way companies report things.

The most glaring example is same-store sales. Most companies make it simple: Stores are counted in the same-store sale calculation if they’re open more than 12 months. But Jos. A. Bank (JOSB) and Talbot’s (TLB) aren’t most chains, and they exclude existing stores for at least a year when new stores open nearby. (That’s one way to avoid the impact of cannibalization.)

Another muddy area is accounting for occupancy costs: Such retailers as Bank and Coach (COH) lump them in with selling and administrative expenses, which inflates the gross margin — inflates it, at least, relative to the likes of Men’s Warehouse (MW), which treats occupancy costs as a cost of goods sold. “It’s a cost of sales,” says Men’s Warehouse CFO Neill Davis. “If I don’t have a building, I don’t have the sales.”

But his company and Jos. A. Bank are direct competitors. Which one has it right?

Hard to say, because neither the Financial Accounting Standards Board nor the SEC have provided guidance on these kinds of issues. “While many think they may be getting comparability on things such as the income statement to key performance indicators or other financial metrics, the truth is it just does not happen as it should,” says Lynn Turner, director of research at the proxy firm of Glass Lewis and former chief accountant for the SEC. Adds Charles Mulford, accounting professor for the Georgia Institute of Technology, “There’s really very little guidance when it comes to disclosure of such un-audited data.”

Astute observations . . .

Financial statements are still a tangle
By Herb Greenberg
CBS, 12:42 PM ET June 16, 2004

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  1. Joe commented on Jun 23

    People have been complaining about this for a long long while.

    Read a portion of “The Money Game” by “Adam Smith” and you’ll see him saying the same thing.

    It seems that it’s just a part of accounting – and while certainly it can be used to fudge numbers it was never a clear cut science to begin with.

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