More LA Times Ignorance

Would it be at all possible that the LA Times assign people to the business section that know something about business?

Over the last several weeks of the Lay-Skilling Enron trial, the prosecution has been putting on witnesses to testify that Enron management managed their earnings in quarterly releases by adjusting accounting reserves to increase reported income.  Here is an example:  Many companies, when they book sales, keep a reserve for noncollectable accounts.  Let's say that if a company books $1 million in sales, they might book 3% or $30,000 as a reserve against noncollectable accounts.  This reduces reported income by $30,000.  But the 3% is fairly arbitrary.  What if the bosses suddenly called down and said, you know, I think its only going to be 2.5%.  Then the entries would be changed and suddenly the company has $5000 more income.  And, if they retroactively changed the 3 to 2.5 for the last several quarters, tens of thousands of dollars might be added to this quarter's income.  Of course, in Enron's case, these entries and reserves were orders of magnitude more complicated and arcane.

So what's my beef against the LA Times?  They headline of their story on the activity I just described is:

Witness Says Enron Raided Fund

Orders to dip into reserves to inflate profit violated accounting rules, a former company accountant testifies.

What fund?  They make it sound like Lay and Skilling went into some bank vault somewhere and took money.  These reserves are not wads of cash sitting in accounts - they are accounting entries providing estimates of future expenses to be booked against current revenues.  What is undisputed is that management changed their estimates of these future expenses, which caused these paper reserve accounts to be reduced, increasing paper earnings.  You might reasonably argue that the only purpose for changing these estimates was to manipulate reported earnings in an unlawful way, and that is what the jury has to decide.  But how can you describe this as "raiding" a "fund", unless you want to portray the defendants in the worst possible light.

My guess is that the people who wrote this at the LA Times are the same ones who keep writing about the "Social Security Trust Fund" as if it is an actual pile of cash in a bank vault somewhere, and not money long ago spent by Congress.

  • http://www.donothaveone.com TC

    The lala times uses the same folk to write on the environment don't they?

    OK the names may be different, but for sure the research and content are equal in value.

  • DeezRightWingNutz

    Changing the reserve percentage over the last several quarters doesn't have a cummulative effect, but just changes the period in which the effect takes place, doesn't it? (assumes a constant level of receivables)

  • markm

    I think the only way the media can understand sums such as $30,000 is, "a stack of money *this* high." I've often wondered if the average reporter can count to 20 - even with his shoes off. If they don't understand numbers, they sure aren't going to understand accounting.