Education Collection

Dirty Rotten Numbers

Enron has made us shine a light on the books of America's public companies. Now, if your company carries even a
hint of bad accounting, the stock will be savaged.

February 18, 2002

By Andy Serwer

In E.B. White's classic children's book Charlotte's halogen light on the books of America's public
Web, there's a scene in which Templeton the rat has companies, and what we're seeing sure ain't pretty. In
just stuffed himself with the garbage left behind after the last couple of days of January alone, stocks of
a fair. "What a night," he says. "What feasting and Tyco, Cendant, Williams Cos., PNC, Elan, and
carousing. Never have I seen such leavings, and Anadarko were brutally punished for alleged or
everything well ripened and seasoned with the acknowledged accounting problems.
passage of time and the heat of the day. Oh it was
rich, my friends, rich." That's what happens at the end The price we, the public, pay for all this is absolutely
of a fair or a carnival. After all the crowds and the mind-boggling. Former SEC chief accountant Lynn
excitement, what remains is nothing more than half- Turner, who's now teaching at Colorado State
eaten cotton candy and assorted other trash. And so it University, estimates that over the past six years, the
is with the 1990s bull market. The tech-stock cost to investors--in terms of stock market losses--of
hawkers, mindless speculators, and clueless dot- financial restatements is well over $100 billion. And
commers have pulled up their stakes, and what we're that doesn't include Enron, which is in a league of its
left with is a bunch of smelly debris. The problem is, own. As Turner points out, the cost of Enron's failure
our digestive tracts aren't like Templeton's. We can't is roughly six times the $15 billion loss suffered from
eat this stuff. Hurricane Andrew.

There's something terribly rotten with American But the ultimate cost could be much larger. If Wall
business right now, and it's making a lot of us sick. Street's growing anxiety about the quality of
All the new- economy lying and cheating that went corporate earnings leads to lower multiples, CEOs
on back in the '90s has come back to bite us in the will face increased pressure to maintain earnings by
you-know-what. And now it's judgment day. No cutting back on things like capital spending, dealing a
more excuses. No more extended deadlines, extra potentially lethal blow to the recovery. "I'm deeply
lines of credit, or skeevy numbers. No more “just worried about the effect of Enron on business
trust us.” No more B.S. Even as Wall Street gazes confidence," says the CEO of a major technology
hopefully at signs of a recovery, the market is company.
ruthlessly separating the haves (as in, your numbers
are on the level) from the have-nots (your numbers It is an environment that disturbs even the most
stink!). "It's sell first and ask questions later on seasoned Wall Street hands. "It's hard for me not to
anything that doesn't look clean," says Steve be angry," says Goldman Sachs' CEO, Hank Paulson,
Galbraith, chief investment officer at Morgan with regard to Enron and others that cross the line.
Stanley. "It's an issue of reputational impairment. Accounting
is the lifeblood of our capital markets system, and we
Obviously, the trigger event here was the Enron have a great need for improvement." Arthur Levitt,
scandal, which would give even Templeton the rat former head of the SEC, is even blunter: "America's
indigestion. Yes, Enron may have been a rogue investors have been ripped off as massively as a bank
operation, but its collapse has forced us to shine a being held up by a guy with a gun and mask."

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So what's going on here? Have we entered a new era anticompetitive (which it was), but it also protected
of corporate moral decay? Why is this happening accounting firms from CFOs who didn't like being
now? And what in the world can be done to fix this told no. Under the new rules, if the auditor doesn't
mess? play ball with an aggressive CFO, it is much easier
for the company to tell the auditor bye-bye.
First, understand that dodgy accounting, or bad
numbers, or whatever you want to call it, covers a But the single biggest reason behind the recent spate
multitude of sins. There are companies that, with or of God-awful accounting has got to be the rise of the
without the help of auditors, commit out-and-out cult of the shareholder. Simply put, over time so
fraud. Less egregious but almost as deadly to much focus has been placed on levitating companies'
shareholders are companies that screw up stock prices that many executives will do almost
unintentionally and are forced to restate their anything--legal or otherwise--to make it happen.
numbers. And then there are companies—and this is
the largest club, including many of America's bluest The cult of the shareholder began during the takeover
of blue chips--that bend and stretch accounting rules and LBO boom of the 1980s, when corporate raiders
to make their numbers prettier. It's not fraud--it's forced CEOs to "maximize shareholder value." The
even legal--but it's deceptive. explosion of stock options in the 1990s created
millions of employee shareholders dependent on
No one can calculate how many companies are rising stock values. Then there are retirement
playing loosey-goosey with their books right now. accounts. (God love them!) Newfangled 401(k)s
We can only count them when they get caught, or often became loaded up with company stock, making
when they restate earnings, or when a journalist or an the daily gyrations of share prices a nationwide
analyst (God forbid!) raises a red flag. What's clear, infatuation.
however, is that there is more bad accounting out
there than ever before. According to Michael Young, Let's not forget about senior management, which was
a lawyer at Willkie Farr & Gallagher, 116 companies increasingly paid in stock and options, and often
needed to correct or restate their financial statements compensated based on the performance of its stock or
in 1997. By 2000 that number had more than the company's earnings growth. Says Harvey
doubled, to 233. Last year was probably worse. In a Goldschmid, a Columbia Law School professor who
separate, confidential survey of big-company CFOs, worked with Levitt at the SEC: "Previously the
some two-thirds said they had been pressured by their CEO's job was much more secure. Today, with CEOs
bosses to misrepresent financial statements. Only that much more accountable for their stocks'
55% said they had successfully resisted. performance, they are under greater pressure to keep
the share price up." And for one group of acquisitive
How did things get so wiggy? Declining corporate companies, a high stock price was even more
ethics definitely plays a role. "Today is significantly important. Cisco, Tyco, and others bought dozens of
different from the 1950s," says Berkshire Hathaway companies in the late 1990s, almost always with
CEO Warren Buffett, who has long been critical of stock. The higher the stock price, the more
accounting ruses. "Back then there was less companies they could swallow.
disclosure, but the disclosure you had was accurate.
In the 1960s you started to have more games being Of course Wall Street was a willing accomplice in all
played. Conglomerates were trying to pump up their this. Analysts' reports became compromised by the
stock to use it as currency in takeovers, but old-line banking side of their firms, looking to protect
America didn't do it. It was still the good guys vs. the lucrative relationships with clients. According to
bad guys. It's not like today, where too often Frank Partnoy, a law professor at the University of
otherwise high-grade companies start with a number San Diego, as late as October 2001, 16 of 17
[for quarterly earnings] and work backward. securities analysts covering Enron rated it a strong
Situational ethics has reared its ugly head." buy or a buy. Scary stuff.

Changes in the bean-counting business certainly The earnings guidance game, of course, is another
haven't helped matters. In the late 1970s the federal facet of the corruption of independent analysis.
government pushed the accounting profession to Companies guide the analysts to a number and then
abandon a code of conduct that prevented accounting magically beat it by a penny. The most adroit at this
firms from undercutting one another on price or even technique was Cisco, which until recently "beat" the
soliciting a company that used another of the Big Street estimate by 1 cent, quarter after quarter. That
Eight (now Big Five) firms. The FTC said this was brings us back to what Buffett said about backing

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into quarterly earnings. If your company did 23 cents mind-numbingly complex accounting maneuvers, a
in Q1 '98, and you told the Street you were growing company can inflate its earnings simply by increasing
at 17%, then you damn well better hit 27 cents in Q1 a pension fund's assumed return. IBM has done that
'99! To Buffett this practice practically necessitates recently.
cheating. "No large company can grow earnings 15%
quarter after quarter like that," he says. "It isn't the And then there are the games companies play with
way business works." write-offs to smooth earnings. Called the big bath, it's
where a company throws all kinds of expenses into a
And so to keep those earnings gains coming, write-off or restructuring charge, booking costs now,
executives have resorted to various gambits. One which makes earnings look better down the road. Get
familiar one is trade loading, or borrowing from next this: According to Zacks Investment Research, only
quarter's sales, as Gillette once practiced--shoving 31 companies now in the S&P 500 reported negative
razorblades into the channel in quantities that nonrecurring items in 1992. In 2000, 247 logged
exceeded consumer demand. Or a company tries to negative nonrecurring items! Twenty-eight of the
book sales that may occur down the road. Some nation's 1,000 largest companies registered negative
suggest that Verisign, which registers domain names, nonrecurring items for the past eight quarters in a
employs this practice. "You get a domain name for row. Is it possible companies have made so many bad
29 bucks for a year, and then the company asks you if decisions that they actually require all those write-
you want to re-up," says a hedge fund manager who offs? Well, it is true that today's companies are bigger
has shorted the stock. "Even if you don't pay for the and more global, and in amore deregulated business
next year, Verisign books your next year's fee as environment. And yes, that makes their books more
deferred revenue, assuming you will come back." complex, but many of the write-offs are about
Verisign says it books roughly half of those fees. smoothing, which makes financial statements even
murkier. "When I take a look at a company's annual
How about vendor financing? That's when a company report, if I don't understand it, they don't want me to
lends money to a customer to buy its product. The big understand it," says Buffett.
telco suppliers like Lucent and Alcatel got burned by
this practice after weak customers went belly-up and Of course, the latest accounting wrinkle made famous
simply defaulted on their loans. Another type of by Enron is "special purpose entities" (see box). The
vendor financing may be found in the consumer area. key issues here are, Should these partnerships be
Ford, for instance, is heavily into lending customers consolidated onto a company's balance sheet, and/or
money to buy its cars and trucks. Let's take a minute are they material enough to report to shareholders?
and drill down into Ford. Vroom! Vroom! A troubled What makes a lot of SPEs tick are derivatives. "At its
company right now, but still a great American brand. core Enron was a derivatives-trading firm," writes
Makes cars. Sells cars. Simple, right? Maybe not. Partnoy in submitted testimony to the U.S. Senate.
According to Partnoy, Enron had $2.7 billion of
More and more, Ford is relying on its financing operating income from derivatives in 1999 and 2000.
business. There's nothing wrong with that per se, but In the same period its ordinary operations lost $947
(1) many investors may not realize that, and (2) that million. None of that was readily apparent to anyone
business has its own pitfalls. In 2000, $28.8 billion, except a forensic accountant.
or 16.9% of Ford's $170 billion in revenues, came
from its financing business. Last year financing There's a problem here. Generally Accepted
accounted for more than 18.9% of its sales. In the Accounting Principles, or GAAP, require a company
past, financing had been a moneymaker for Ford, but to show bad stuff. But companies have found a neat
with the company offering 0% financing to boost car way to circumvent GAAP: Keep analysts and
sales, this business lost $360 million in the fourth investors focused on, well, what companies want
quarter of 2001. So is finance a loss leader for car them to focus on! One way to do that is by ginning
sales? Not exactly. Sadly for Ford, even with 0% up pro forma earnings like Ebitda--earnings before
financing, its auto business lost $4.7 billion in the interest, taxes, depreciation, and amortization--which
same quarter. some observers derisively refer to as "earnings before
bad stuff." Originally pro forma was used to help
Another ploy is so-called cookie-jar accounting, in investors. If a company sold a plant and booked a
which a company sets up reserves and then reverses one-time gain, pro forma stripped out the gain to
them later to smooth out its financial returns. There show what the company's operations were actually
are games that can be played with pension funds to doing. But now pro forma is used to skew and to
smooth out earnings. For instance, through some hide.

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Basically, pro forma earnings allow a company to audits publicly owned companies, establishes quality
show investors the quarter through rose-colored control requirements for member firms, and reviews
lenses. Things like nonrecurring items are ignored. allegations of audit failure. A Public Oversight Board
For the first three quarters of 2001, three Nasdaq was created to oversee and report on the activities of
giants--Cisco, Dell, and Intel--reported combined pro the SEC Practice Section. The board's members are
forma earnings of $4.4 billion. What were real GAAP independent, and it mainly oversees peer reviews that
earnings to the SEC? A $1.4 billion combined loss. one accounting firm does of another's work. But all
of the members of the POB resigned in late January
One way the sport is played is that soon after the after being slighted by new SEC chief Harvey Pitt,
quarter is closed, a company issues a press release who recommended establishing a new oversight
with the requisite rosy pro forma numbers. The board.
company's 10-Q, which is filed with the SEC, doesn't
come out for up to 45 days after the end of the The Financial Accounting Standards Board (FASB)
quarter. Here the company will present its less determines what GAAP shall be. FASB's Emerging
flowery GAAP numbers, "but by that time, they've Issues Task Force (EITF) deals with questions that
got you focused on the next quarter, or so they hope, come up about the interpretation of GAAP. Then
so it is ignored," says forensic accountant Jack there's the American Institute of Certified Public
Ciesielski. The SEC seems to be cracking down on Accountants (AICPA), essentially the industry's trade
this game, however. It recently issued a cease-and- organization. The Accounting Standards Executive
desist order against Trump Hotels & Casino Resorts Committee (AcSec) is the AICPA's official voice on
for issuing a misleading earnings press release. financial reporting standards. The Auditing Standards
Board (ASB), which worries about auditing
And where, you may be asking at this point, are the procedures, is also part of the AICPA. Whew! Got
auditors in all of this? Well, some would say, in that? It may be a rat's nest partly by design. After all,
many instances they are complicit. Bending or the industry has lobbied very effectively over the
stretching rules doesn't entail breaking rules, so years (ask Levitt and Turner about that) to block
auditors are happy to sign off on statements that don't reforms as well as any sort of effective independent
violate the letter of the law. "Hard-and-fast rules, or oversight.
'bright lines,' actually encourage this," says
Ciesielski, "since it means that accountants can work Okay, so how do we fix this mess? Who do we go
up something that gets around the rules." In other after? "This is almost like the war on terrorism," says
words, a company can mislead investors--and still be Schilit. "It's a huge problem that will take time to fix.
following GAAP to a tee. GAAP's bright lines differ The culture of the big accounting firms needs to
from British accounting regulations, which are less change. People in the firms need to know that this is
specific but basically require that auditors don't a public calling. The highest responsibility is to
violate the spirit of the law. investors."

Enron shows auditor/client complicity at its absolute Here are just a few of the proposals being bandied
worst. The ties there were so close that any notion of about. Turner suggests that auditors should be
an "independent" auditor was lost. Enron hired all required to rotate clients after several years. He also
sorts of Arthur Andersen employees, and the auditor suggests that companies be required to file an 8-K (an
billed more than $25 million in consulting fees to the SEC report of a noteworthy corporate event) if and
company in 2000. "The auditors say the situations are when a CFO leaves the company, explaining why he
too complicated--well, if the business was so left. (Think Andy Fastow and Enron here for a
complicated, why did they sign the 10-Q?" asks minute!) Harvey Goldschmid, the Columbia law
forensic accountant Howard Schilit. "Auditors should professor, proposes an independent accountancy
be like referees in football. Sometimes you don't like board (with teeth!) for the auditing community.
the zebras, but that's just too bad." Arthur Levitt agrees with Goldschmid and adds, "The
independent board must have subpoena power."
As for who's auditing the auditors, well, that's a good
question. Auditor oversight and regulation can only Then there is a move afoot to bar firms from doing
be called Byzantine, inefficient, and incomplete. both audit and consulting work for the same client.
First, the SEC has oversight authority on everything Recently four of the five biggest audit firms (Deloitte
that goes on regarding GAAP and the auditing of & Touche is the holdout for now) announced they
publicly owned companies. There is an SEC Practice were taking steps to move in that direction, saying
Section, composed of 1,300 accounting firms, that they would no longer do certain technology

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consulting for clients whose books they audit. And that were the case, investors would require a greater
separately, Disney recently became the first major risk premium for stocks," says Levitt. What does that
company to say that it will no longer allow its auditor mean? A risk premium in bonds is easy to
to do consulting work. understand. There, investors demand a greater yield
for a riskier investment. But in stocks a higher-risk
But perhaps the best place to focus attention is on the premium is expressed as lower stock prices. In other
audit committee of boards of directors. Warren words, you would pay less for a riskier stock relative
Buffett proposes that the audit committee have a to its earnings or dividends. So a lack of confidence
Q&A session with auditors (for a list of his suggested would keep stock prices down.
questions as well as others' proposals for reform, see
"The system's broke. Here are a few good For now, what's being called Enronitis shows no sign
suggestions on how to fix it"). "You can't meet on an of abating. Reports of companies with accounting
audit committee for two hours twice a year and really issues have been literally flooding the wires. At the
know what's going on," says Buffett. "Auditors most top of the list was the Tyco, which like Enron was
of the time will know--put them on the spot." And once a darling of Wall Street and is now fighting for
Buffett wants these questions and answers to go into its credibility. Sources said that as of late January
the minutes unfailingly. Tyco was looking to arrange a capital infusion--
maybe, for example, the sale of a large amount of
Then there is the question of jail time for those preferred stock to a buyer of unquestioned reputation.
convicted of willful fraud. Almost everyone (The company did secure a $1.5 billion bridge loan.)
interviewed for this story thought that was a good CIT (now called Tyco Capital), a finance company
idea. Both Buffett and Goldschmid point out that jail Tyco bought last year, requires constant access to
time may not always deter burglars, but it does tend capital. Whenever word begins to spread about
to have a particularly healthy effect on white-collar weakness in a corporation, the financing arm feels it
crime. "I think it's going to happen, and I think it will first and hardest. And then, when the financing arm
change behavior," says Buffett. Yes, executives have can't raise money, that sends a very large signal about
gone to jail for past abuses, but not the highest- the whole corporation.
profile ones like an Al Dunlap.
A signal that Wall Street is now hearing loud and
And there is one last option. Doing nothing. What clear. ■
would be the impact of that? Well, it could be that
investors lose faith in our financial system. We may
already be seeing some of that in the short term. "If

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The system's broke. Here are a few good suggestions on how to fix it.
Arthur Levitt The former SEC chairman, who's Jack Ciesielski From his offices in downtown
now a senior consultant to the Carlyle Group in Baltimore, Ciesielski publishes the deeply
Washington, D.C., has never been shy about speaking penetrating Analyst's Accounting Observer. And for
his mind when it comes to questionable accounting. an accounting newsletter, it's a good read. For the
Levitt says that during his tenure the accounting past five years Ciesielski has published an
profession lobbied against reforms that could have unscientific year-in-review history of accounting,
prevented some of the problems currently vexing including major blowups. As you might imagine, the
investors. He favors establishing an independent number of black eyes has grown, from two in 1997 to
oversight board that has real teeth and calls for 22 last year. What should be done? "One thing would
diminishing the power of the AICPA, the accounting be to make companies file their 10-Qs and earnings
profession's trade group. The worst-case scenario? press release with pro forma numbers at the same
Doing nothing, he says. That could erode investors' time; that way investors could compare pro forma
confidence in the market and drive stock prices numbers with GAAP numbers." That would prevent
down. companies from focusing investor attention on
squishy pro forma numbers and away from GAAP.
Harvey Goldschmid He's been a professor of
law at Columbia University in New York since 1970, Warren Buffett Three years ago the Berkshire
and he's of counsel at Weil Gotshal & Manges. Hathaway CEO proposed three questions any audit
Goldschmid worked in Arthur Levitt's SEC as committee should ask auditors: (1) If the auditor were
general counsel and special senior advisor. He's solely responsible for preparation of the company's
keenly aware of the pressure CEOs now face when it financial statements, would they have been done
comes to making the stock of their company go up differently, in either material or nonmaterial ways? If
and stay up. "Previously the CEO's job was much differently, the auditor should explain both
more secure. Today, with CEOs that much more management's argument and his own. (2) If the
accountable for their stocks' performance, they are auditor were an investor, would he have received the
under greater pressure to keep the share price up." information essential to understanding the company's
Like Levitt, he favors a new independent financial performance during the reporting period?
accountancy board for auditors. Goldschmid has been (3) Is the company following the same internal audit
ecommended by Sen. Tom Daschle to be appointed procedure the auditor would if he were CEO? If not,
an SEC commissioner. what are the differences and why? Damn good
questions.

Off balance sheet—and out of control

The press calls them "off-balance-sheet big construction project--would set up an SPE and
partnerships"—those hundreds of Enron entities that offload the financing to the new entity. For example,
were used to hide its debt and book illusory profits. a company looking to build a gas pipeline but not
On Wall Street, though, they're known as special wanting to assume all the debt load would set up an
purpose entities, or SPEs, and you'd be hard-pressed SPE--essentially, a joint venture with other
to find a FORTUNE 500 company that doesn't use investors--to build it. The SPE would own the
one. Are they all as bad as Enron's? Thankfully, no. pipeline and use it as collateral to issue the bonds to
But they offer plenty of temptation for companies finance it. The sponsoring company would still
looking for legal ways to cook the books. operate the pipeline, with the revenues being
used to pay back the bondholders.
Like many complex instruments, SPEs were created
to perform a straightforward, necessary task-- In theory, SPEs protected both sides of the
isolating and containing financial risk. Businesses transaction if something went awry. If the project
that wanted to perform a specialized task--an airline went bust, the company was responsible only for
buying a fleet of airplanes; a company building a what it had put into the SPE; conversely, if the

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company went bankrupt, its creditors couldn't go SPEs cleverly exploit discrepancies between
after the SPE's assets. accounting rules and tax laws. Synthetic leases are a
good example. These are transactions in which a
Over time, SPEs became essential components of company sells an asset to an SPE and then leases it
modern finance. Their uses expanded wildly--and back. The company gets to move the asset off its
legitimately. For example, virtually every bank uses balance sheet--yet for tax purposes it retains the
SPEs to issue debt secured by pools of mortgages. ability to depreciate the asset as if it were still the
And companies as diverse as Target and Xerox use owner.
SPEs for factoring--the centuries-old practice of
generating cash by selling off receivables. Enron employed all these tactics and then some. It
even sold dubious assets to its SPEs at inflated prices
But SPEs also evolved into an effective scalpel for to produce bogus income. And it had almost 900 off-
CFOs looking to perform cosmetic surgery on their balance-sheet partnerships located in international tax
balance sheets. That's because the accounting rules havens, a fact that mystifies most experts. "If a
say that as long as a company owns less than 50% of company has four or five of these things, that
an SPE's voting stock, the SPE's assets and debt don't would be a lot," says Allen Tucci, a partner at Tucci
have to be consolidated on its books. In fact, due to & Tannenbaum, a Philadelphia law firm that helps set
a particularly egregious accounting reg, the SPE's up SPEs.
nominal owner--usually some friendly outside
investor--needs to put up only 3% of the SPE's Enron also appears to have stretched the rules well
equity. The company establishing it can contribute past the breaking point. It used side agreements to set
the remaining 97%, and it still qualifies for off- up SPEs that didn't even clear the 3% hurdle. And
balance-sheet treatment. many of its partnerships were designed to create the
appearance that the SPE's investors and bondholders
Today many transactions between companies and were assuming risks when, in fact, Enron retained
their SPEs do not isolate risk at all; their primary most--and in some cases all--of them.
purpose is to hide pertinent information from
investors. Take factoring again. The sponsoring The full story of what Enron did with its SPEs will
company usually provides the SPE's bondholders undoubtedly emerge in the coming months. In the
with guarantees called credit enhancements, which meantime, the Feds are finally cracking down. Late
are promises to maintain the value of the SPE's assets last month, PNC Bank took a $155 million hit to its
at some minimal level. In more complicated SPEs, earnings. Why? Because the SEC and the Federal
such as some of Enron's, options or derivatives Reserve forced it to reinclude three SPEs on its
are used to guarantee the bondholders' returns. balance sheet.
Amazingly, this practice is technically allowable.
SPEs are also a good way to keep money away from —Jeremy Kahn
Uncle Sam. Most tax-avoidance techniques using

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 COMPANIES UNDER THE GUN SETTING A GOOD EXAMPLE
Tyco It's impossible to tell from the financial Boeing Instead of burying stock compensation
statements just how much of the conglomerate's expenses deep in the footnotes, Boeing actually puts
earnings growth is being generated from its continual them in the income statement.
stream of acquisitions--and how much is actually
sustainable.

Williams Cos. Management admits it's in a fog Amerada Hess The oil company chooses to
about how to account for more than $2 billion in debts expense unsuccessful exploration costs as soon as
owed by a former subsidiary. No sign yet of a fourth- they're incurred rather than spread them out over
quarter earnings release. several years.

J.P. Morgan Chase Investors are only now FPIC Insurance Insurance companies can
discovering that the bank may lose billions from its manipulate earnings by playing with reserves for
dealings with Enron. The company's financial claims. FPIC recently adopted a more conservative
statements provide no mention of the exotic offshore approach to setting up reserves--a method that lowers
vehicles that it used to do business with the fallen today's earnings.
energy company.

Calpine Last year the SEC instructed it to change Synopsys Some software companies boost
the way it presents Ebitda in its annual report. earnings by booking all the revenues from a multiyear
contract as soon as the product is shipped. Synopsys
instead books revenues evenly throughout the
contract's life.

RSA Security In 2001 the company began Wal-Mart A new accounting rule involving
booking sales as soon as its software was shipped to goodwill amortization will increase the 2002 earnings
distributors—why wait until an end user actually of many companies--management talent has nothing to
purchased it? The SEC is investigating whether the do with it. Wal-Mart has already fessed up and
change was adequately disclosed to investors. disclosed the earnings boost the rule change will give
it.

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