Linked by Thom Holwerda on Thu 19th Jul 2012 23:57 UTC
Microsoft "Microsoft today announced quarterly revenue of $18.06 billion for the quarter ended June 30, 2012. Operating income and loss per share for the quarter were $192 million and $0.06 per share. The financial results reflect the previously announced non-cash, non-tax-deductible income statement charge of $6.19 billion for the impairment of goodwill and the deferral of $540 million of revenue related to the Windows Upgrade Offer."
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Frankly, I preferred the pre-2001 situation, in which companies were allowed to amortize goodwill. The cost of an acquisition should be reflected over time, rather than taken as a lump-sum impairment.

By forcing goodwill to stay on the books until impaired, GAAP has set up a situation in which the accounting fails to reflect the actual economic situation, no matter which way you look at it. You can't look at GAAP results, because they claim that Microsoft lost money this quarter, which is obviously untrue. You can't use the non-GAAP results either, because they claim that Microsoft did not waste a penny on aQuantive back in 2007, which is also untrue.

Amortization has problems -- how long do you amortize over? But that can be solved with rules -- and after all, the whole point of GAAP is that it's rules-based while IFRS is principles-based. When the FASB threw out amortization entirely in 2001, they threw out the baby with the bathwater. They traded a flawed-but-logical situation for a completely ridiculous situation.

Edited 2012-07-20 17:12 UTC

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