In my last posting I tried to make assets out of liabilities. Now I want to make some profits out of my liabilities. This is a piece of cake under current GAAP but my current favorite again relates to the issue of the convertible debt that seems to be so popular with companies with a bit of a going concern problem. Continue reading “How to create profits out of thin air”
Now to make silk purses (assets) out of sows’ ears (liabilities)
I have noticed a few companies using some ingenious accounting to create assets by issuing liabilities.
I have noticed a few companies using some ingenious accounting to create assets by issuing liabilities. One would have thought that debit cash credit liabilities would be a fairly simple transaction when you issue debt. Not so when that debt is convertible debt issued with a warrant.
The way the scheme runs is a follows. The text books and the ancient APB 14 tell us that when you issue debt with detachable warrants you have to separate the warrants out from the debt and take the value assigned to the warrants to paid in capital. Continue reading “Now to make silk purses (assets) out of sows’ ears (liabilities)”
Convertible Debt and Its Never Ending Financial Statement Destruction
While preparing for the next client argument, I mean discussion, involving the issuance of convertible debt I was reminded of the additional effects certain provisions of EITF 00-19 has on other outstanding financial instruments / derivatives.
As anyone with outstanding convertible debt is aware, the key point to simplifying the accounting for any conversion feature that appears to require derivative accounting is to force the feature into being classified as permanent
While preparing for the next client argument, I mean discussion, involving the issuance of convertible debt I was reminded of the additional effects certain provisions of EITF 00-19 has on other outstanding financial instruments / derivatives.
As anyone with outstanding convertible debt is aware, the key point to simplifying the accounting for any conversion feature that appears to require derivative accounting is to force the feature into being classified as permanent equity. In general, the best way to classify the resulting derivative as permanent equity is to convince yourself, your auditor, and in most cases the SEC, that your debt qualifies as a “conventional convertible debt” as unclearly defined by paragraph 4 of EITF 00-19 and then by the equally obscure EITF 05-02. Continue reading “Convertible Debt and Its Never Ending Financial Statement Destruction”
Does anybody know what an accounting policy is?
Until FAS 154 came along I thought I understood what an accounting policy was. They were the things that went into note 1 to the financial statements for situations where there was an accounting choice between two alternatives. Rather curiously whatever choice you made ended up providing a fair presentation as long as you were consistent and disclosed it in Note 1.
Until FAS 154 came along I thought I understood what an accounting policy was. They were the things that went into note 1 to the financial statements for situations where there was an accounting choice between two alternatives. Rather curiously whatever choice you made ended up providing a fair presentation as long as you were consistent and disclosed it in Note 1. Continue reading “Does anybody know what an accounting policy is?”