Making(Up)Numbers 157America for its abuses of financial reporting, as have many since,
most notably City University of New York accounting professor Abra-
ham Briloff.^4
SATIRE
Graham satirically hypothesize da phantom US Steel Corporation
adopting “advanced bookkeeping methods” to report “phenomenally
enhanced” earnings without any cash outlays or changes in operat-
ing conditions or sales. To update that illustration of accounting
chicanery, consider how a phantom company might today achieve
the same results by using techniques like those Levitt denounces.
Its press release an daccompanying financial reports might look like
this:
E-America Dot.Com Announces Positive Earnings
E-America Dot.Com today announced positive earnings, stunning
Wall Street analysts whose consensus view estimate dcontinue dneg-
ative earnings for the start-up that went public last year. Its stock
price shot up 40% on the news. Though this response is usually re-
serve dfor companies that report negative earnings, we believe it is
justifie dfor the same sort of reasons—none.
Rather than taking any action to increase sales or improve its
products, marketing strategy, distribution channels, or customer ser-
vice, the earnings increase was due to improvements in the manner
in which the company’s economic activity is recorded in its books.
These new bookkeeping methods report profits of $50 per share in-
stea dof the $25 loss per share that otherwise woul dbe reporte d. The
accounting improvements consist of the following steps:
- Modifying revenue recognition policies
- Adjusting reserves and treatment of returns
- Recording the value of market share as an asset
- Recording the amount of cash we “burn” as an asset
- Reporting in a different currency
- Refining the concept of materiality
The Boar dof Directors of E-America Dot.Com, in collusion with
their auditors, reached the following conclusions in adopting this pro-