158 ShowMetheMoney
gram in a resolution unanimously approve dat its boar dmeeting this
week:
The Board of Directors and its Independent Outside Auditors,
after careful study and review, determined that the accounting policies
an dpractices the company use dsince its recent initial public offering
ten months ago are outdated and do not reflect the kind of perfor-
mance managers of the company expect or predict.
The Boar dan dits Au ditors, ai de dan dabette dby a special au dit
committee, determined that many other companies obtain a compet-
itive advantage in the capital markets by reporting accounting results
in terms of innovative, cutting-edge techniques and that the company
was penalize dfor failing to follow these best practices, referre dto as
the “New Accounting.”
Adopting the New Accounting will neutralize this disadvantage
an denable the company to increase its market capitalization without
the nee dfor disbursing cash or changing any of its operating activities.
The changes adopted by the Board, with the attestation of its Audi-
tors, are as follows:
modifying revenue
recognition policiesCompetitive conditions in our industry lead us to give generous credit
terms to our customers. These include giving them the right to return
goods to us for a full refund if they cannot resell them to the ultimate
consumer within 180 days. We formerly deferred recognizing the
revenue in connection with such transactions until after that 180-
day perio dpasse don the groun ds that no sale was complete until
then.
But this ol deconomy policy substantially re duce dthe amount of
reported sales reflected on our income statement. The Board decided
to treat those transactions as sales right away, on the grounds that
our sales team put tireless effort into generating them an dshoul dget
credit. (We can make adjustments for returns later, but for now we
woul drather report the goo dnews in the short term an d defer the
ba dnews for the long term.)
In particular, we will occasionally “park” inventory with our cus-
tomers, to whom we give unconditional return rights either orally or
in “side letters” kept separate from the sales documents. As a result
of this scheme, we will report much higher sales revenue an d dramatic
increases in earnings. If adjustments must be made to smooth those
earnings, we will restate past earnings in subsequent quarterly reports