The [chat] that is not about Drake

Elki

This discussion was created from comments split from: If You're Reading [chat] It's Too Late.

ronya

oh well I'm too slow

The King of All Shenanigans. If you were to put options backdating
on one side of a scale that weighs dishonesty, and any other
shenanigan on the other side, we believe that backdating would always
be heavier. Why? Because all other shenanigans are designed
to enrich management in a complicated, indirect manner, while
backdating does so without any serious effort at all. Look at all the
“hard work” Enron executives had to do to create all those crazy
joint ventures to make results appear better! Look at the acquisition
activity at Tyco and the gyrations that Symbol Technologies went
through in order to get positive results! And no matter how much
cheating went on at these companies, there was never a guarantee that
the stock price would respond accordingly. With options backdating,
however, management barely had to lift a finger in order to cheat.
And, of course, the process guaranteed a positive result. For this
reason, we crown backdating as the King of all Shenanigans.

The options backdating scheme was really quite simple. Before
finalizing an option grant, executives pulled up the stock chart and
looked back in time to find a date on which the stock price was at
a much lower level. They then said hocus pocus and “backdated”
the paperwork to make it seem as if the stock option had really
been granted on that earlier date. And voilà, the stock options had
instant value. Of course, options backdating had accounting implications
as well. By not reporting the compensation expense resulting
from these “in-the-money” grants, companies were overstating
their earnings to shareholders.

Few companies abused options backdating as much as semiconductor
giant Broadcom Corp. The saga began when Broadcom’s
board initiated a review of option-granting practices on May 18,
2006, two days after a seminal CFRA (Center for Financial Research
and Analysis) survey on options backdating listed Broadcom as
one of the companies “presenting the highest risk of having backdated
options” (Figure 7-1 shows one of Broadcom’s backdating



charts). After two months of investigating, Broadcom finally admitted
what it had done and estimated that this abuse of the system
had allowed the company to avoid a whopping $750 million
in compensation expense. But that was not the end of the story.
The following January, Broadcom shocked investors by announcing
an unbelievable $2.2 billion expense, which tripled the original
estimate and trumped the $1.5 billion estimated restatement record
held by former backdating champion UnitedHealth Group.

Some executives still argue to this day that the media blew the
backdating scandal out of proportion and that the misdated grants
were simply caused by “careless record keeping.” Au contraire.
(We weren’t permitted to use stronger language in this PG-rated
book.) The sheer pervasiveness of this scandal across hundreds of
companies actually makes it seem that many executives considered
backdating to be a perk of running a public company. But don’t
take our word for it—see for yourself. Figure 7-1 provides some
snapshots depicting one of many dates on which three companies
granted options to executives. Can anyone really say with a straight
face that these grants were the result of careless record keeping?

Failure to Record a Portion of an Expense Related to a Transaction
Remember our earlier discussion of the quirky two-part transaction
between Intel and Marvell? Intel sold a business to Marvell in
2006 at what seemed to be a discount, and, simultaneously, Marvell
agreed to pay above list price for a certain amount of product later
to be purchased from Intel. (See Marvell’s footnote shown here.) As
explained in Chapter 3, Intel appeared to structure this transaction
in a way that allowed it to understate the gain from the one-time
asset sale and overstate the more desirable stream of revenue (by
overcharging on the product sales).

Marvell’s 10-Q Discussion about its
Transaction with Intel

In conjunction with the acquisition of the ICAP Business,
the Company entered into a supply agreement with Intel.
The supply agreement obligates the Company to purchase
certain finished product and sorted wafers at a contracted
price from Intel for a contracted period of time. The contracted
period of time can differ between finished products
and sorted wafers. Intel’s pricing to the Company was greater
than comparable prices available to the Company in the market in
almost all cases. In accordance with purchase accounting, the
Company recorded a liability at contract signing representing the
difference between Intel prices and comparable market prices for
those products for which the Company had a contractual obligation.
[Italics added for emphasis.]

Now, let’s look at this same two-way transaction, but from Marvell’s
perspective. Marvell essentially paid Intel less money up
front to purchase the business, and in exchange, agreed to purchase
inventory from Intel at an inflated price. While it sounds
as if this transaction will cause Marvell’s earnings to be lower
in future periods, as it is overpaying for inventory, this is actually
not the case. It appears that Marvell accounted for the entire
overpayment by recording a liability (or reserve) on its Balance
Sheet, which it would draw down over time as a reduction of
cost of goods sold (to “offset” the inflated prices). There was
no need for Marvell to record an expense to create this reserve,
since it already had been set up in the purchase accounting for
the acquisition. In essence, Marvell created a “cookie jar” reserve
without recording an expense, and it used this reserve to
offset overpayments as it saw fit. Indeed, this transaction actually
provided Marvell with more discretion over its earnings each
quarter.

2. Failing to Record an Expense for a Necessary Accrual
or Reversing a Past Expense

Management sometimes fails to record the necessary expense accruals
for expected costs. These accruals are generally company
estimates of routine liabilities incurred in normal business operations,
such as a manufacturer’s warranty. Often these costs are estimated
and recorded at the very end of a quarter. In the previous
chapter, we introduced the concept of expense accruals (reserves)
and highlighted reserves that are recorded as reductions to assets,
such as the allowance for doubtful accounts and the inventory
obsolescence reserve. In this section, we discuss reserves for estimated
obligations that are shown as liabilities.

Failing to appropriately record an expense for these costs, or reversing
past expenses, will inflate earnings. Since these costs rely on
management assumptions and discretionary estimates, all management
needs to do to generate more earnings (and achieve Wall Street
targets) is to tweak these assumptions. To illustrate, consider the
shenanigans that occurred at Dell Computer from 2003 through the
beginning of fiscal 2007. The published findings of a special investigation
conducted by Dell’s audit committee in 2007 (as presented
here) provide some fantastic, juicy details about Dell’s games with
reserves (don’t skip the box; there is some amazing stuff in there).

Dell’s Discussion of Its Audit Committee
Investigation Findings in an August 2007 8-K
The investigation raised questions relating to numerous accounting
issues, most of which involved adjustments to various
reserve and accrued liability accounts, and identified
evidence that certain adjustments appear to have been motivated
by the objective of attaining financial targets. According
to the investigation, these activities typically occurred in the
days immediately following the end of a quarter, when
the accounting books were being closed and the results of
the quarter were being compiled. The investigation found
evidence that, in that timeframe, account balances were reviewed,
sometimes at the request or with the knowledge of
senior executives, with the goal of seeking adjustments so
that quarterly performance objectives could be met. The investigation
concluded that a number of these adjustments
were improper, including the creation and release of accruals
and reserves that appear to have been made for the
purpose of enhancing internal performance measures or reported
results, as well as the transfer of excess accruals from
one liability account to another and the use of the excess balances
to offset unrelated expenses in later periods.

Watch for Declines in Reserves for Warranties or Warranty
Expense. Many companies bundle expensive warranties with
their products, covering potential problems that could arise years
after the purchase. For example, if you were to purchase a laptop
from Dell, it might come with a two-year warranty promising that
Dell will replace or repair all defective parts during that period.
Dell cannot just wait and see how much it will wind up spending
on warranty costs for your computer before recording the expense.
Accounting rules require Dell to record an expense for expected
future warranty costs at the time the product is sold. Naturally,
management can exercise great discretion in the amount it records
as warranty expense each period. If it chooses too little, the profits
will shoot up; if it chooses too much, profits will be constrained (or
simply held back for a rainy day).

Indeed, part of Dell’s restatement involved improper accounting
for warranty liabilities. Again, the audit committee’s discussion of
its findings is quite revealing and did such a great job of explaining
the mechanics that we figured we’d let the committee teach you
directly.

Dell’s Discussion of Its Audit Committee
Investigation Findings in an August 2007 8-K

There were also instances where warranty reserves in excess
of the estimated warranty liability, as calculated by the
warranty liability estimation process, were retained and not
released to the Statement of Income as appropriate. Additionally,
certain adjustments in the warranty liability estimation
process were identified where expected future costs or
estimated failure rates were not accurate.

Tip: A decline in warranty expense or warranty reserve relative
to revenue may signal that earnings are being inflated through
underaccruing for warranty obligations. Monitor these trends
quarterly!

Watch for Declines in the Employee Bonus Accrual. Employees
earn bonuses over the course of the year, and naturally, accounting
rules require that the expense be spread throughout the year
even if the employees receive a single lump-sum payment. If management
fails to record this accrual in any particular quarter, earn
ings for that period will be overstated. Moreover, the inappropriate
reversal of past bonus accruals will inflate earnings as well. Dell
certainly was familiar with this simple trick, as the investigation
found.

Dell’s Discussion of Its Audit Committee
Investigation Findings in an August 2007 8-K
Certain employee bonuses were not accrued correctly, including
the timing of the recording of the accrual for the
employee bonuses. Additionally, in certain cases when
excess accruals resulted from differences in the actual bonus
payments, the excess accruals were not adjusted as
appropriate.

not very interesting anyway

Trace

ouch

Tav

good morning friends

ronya

*hides*

Shazkar Shadowstorm

Rude

tyrannus

oh wow get dunked

emnmnme

Tav wrote: »

good morning friends

Good morning, Drake.

Elki

Oh I see, the auto-split post is a special kind of post that I have no ability to edit/delete. Interesting.

Abdy

Good day

I have cleared my living room table - well, I call it that, even though this is a one room apartment

I have a shopping bag full of old magazines and junk mail and whatnot that was taking up space.

But now I've got a bed full of stuff and I'm still stumped as to where this all should go

emnmnme

Elki wrote: »

Oh I see, the auto-split post is a special kind of post that I have no ability to edit/delete. Interesting.

You meddled with powers you didn't fully comprehend and doomed us all.

Elki

Echo wrote: »

https://github.com/crockpotveggies/tinderbox

Of course a programmer writes a machine-learning app that analyzes your swipes in Tinder and builds a facial recognition model to predict whether you'll like someone or not and automates messaging.

I am so turned on right now.

RMS Oceanic

I have failed because I was playing Duke Nukem. Specifically this part:

https://www.youtube.com/watch?v=lzswU3Qc2fA

Delmain

Booo...

I was writing a chat OP and saw jake posted one so I just saved it and this is the thread we get?

RMS Oceanic

Geth appreciates my human frailty.

815165

ingredients for temporary mental well being:

bed
cheesecake
naps
music
a disregard for your obligations

misery, distant loves, unreciprocated loves, unsaid words all sold separately

Elki

The no Drake rule has been harshly enforced since I ever thought of it, 5 minutes ago.

Wash

Jake's [chat]'s can't catch a break

Bogart

Elki is a jealous God.

Reading an excerpt from Jon Ronson's next book "So You've Been Publicly Shamed", in which he interviews a bunch of people, like Justine Sacco, who've been pilloried and fired after social media storms. It's pretty interesting. Here.

Neither the person making the dumb joke about dongles nor the person who tweeted her disapproval profited, with the former being fired two days after the incident and the latter being fired after MRA types launched DDoS attacks on her company and said they'd only stop when she was fired.

RMS Oceanic

Elki wrote: »

The no Drake rule has been harshly enforced since I ever thought of it, 5 minutes ago.

Is there a No Drakes rule?

Gonmun

Elki wrote: »

The no Drake rule has been harshly enforced since I ever thought of it, 5 minutes ago.

Since I'm late coming into this can the no Drake rule be explained?

Delmain

Didn't someone post that yesterday, Bogart? I feel like I read that already

RMS Oceanic

Bogart wrote: »

Elki is a jealous God.

Reading an excerpt from Jon Ronson's next book "So You've Been Publicly Shamed", in which he interviews a bunch of people, like Justine Sacco, who've been pilloried and fired after social media storms. It's pretty interesting. Here.

Neither the person making the dumb joke about dongles nor the person who tweeted her disapproval profited, with the former being fired two days after the incident and the latter being fired after MRA types launched DDoS attacks on her company and said they'd only stop when she was fired.

Twitter is very much a look don't touch thing for me.

Elki

Gonmun wrote: »

Elki wrote: »

The no Drake rule has been harshly enforced since I ever thought of it, 5 minutes ago.

Since I'm late coming into this can the no Drake rule be explained?

A: I don't like Drake.
B: A.

Delmain

What about short appearances in otherwise flawless media?

the music video for Anaconda, for example

Elki

RMS Oceanic wrote: »

Elki wrote: »

The no Drake rule has been harshly enforced since I ever thought of it, 5 minutes ago.

Is there a No Drakes rule?

Elki wrote: »

Down with Drake. All dragons must die, and ducks too.

Yoshisummons

Just because I'm sitting here drawing noses does not mean I value my time so little that I'm willing to help you do the homework that is due in 30mins.

RMS Oceanic

Elki wrote: »

RMS Oceanic wrote: »

Elki wrote: »

The no Drake rule has been harshly enforced since I ever thought of it, 5 minutes ago.

Is there a No Drakes rule?

Elki wrote: »

Down with Drake. All dragons must die, and ducks too.

SanderJK

Elki wrote: »

RMS Oceanic wrote: »

Elki wrote: »

The no Drake rule has been harshly enforced since I ever thought of it, 5 minutes ago.

Is there a No Drakes rule?

Elki wrote: »

Down with Drake. All dragons must die, and ducks too.

Dragons is one thing.
Screwing with the ducks though.... that can have consequences.

RMS Oceanic

This is a thread in which Geth expresses exquisite taste.

Tav

god bless r/tinder

Shazkar Shadowstorm

Lol I weighed 130 lbs this morning

Bogart

Delmain wrote: »

Didn't someone post that yesterday, Bogart? I feel like I read that already

I dunno. Maybe? I didn't see it here.

Abdy

but Elki you're just a hater



look at that cutie pie

the total size of these images is 492,3 Kb exactly

in case you were wondering :P

syndalis

Wait wait wait

did he draw that beard and those tats on with a sharpie?

How could this possibly work?

Bogart

Has he drawn that van dyke on?

Delmain

Bogart wrote: »

Delmain wrote: »

Didn't someone post that yesterday, Bogart? I feel like I read that already

I dunno. Maybe? I didn't see it here.

Yeah, I started reading it and had that feeling that I'd read it before so I skipped around and kept feeling that way so I'm going to assume it was posted recently.

I do agree that it's kind of bullshit though.

Gonmun

Well...shit...checking the weather for Sunday and it's calling for 50-65cms (over 20 inches for you non-metric heathens).

Delmain

syndalis wrote: »

Wait wait wait

did he draw that beard and those tats on with a sharpie?

How could this possibly work?

I'm honestly a bigger fan of the fact that he drives around in his pimp hwip

815165

why the fuck has vinny got marker on his face

21stCentury

I think I'm done with this piece... Liking it a lot.



But maybe the musical notes are a bit much... OH WELL!