(Almost) final tally on lease restatements

Bloomberg reports today that 51 companies have restated their earnings due to problems with lease accounting and the restatements have resulted in reducing pre-tax earnings by $1.5 B.

From the story:

McDonald's Corp., Borders Group Inc. and 50 other companies have lopped more than $1.5 billion off their reported pretax earnings since federal regulators urged them in November to review how they account for leases of stores and other rental properties, company filings show.

The U.S. Securities and Exchange Commission is disputing the accounts of restaurant chains, retailers and others, saying they may have ``deviated from standard accounting practices'' by not recording rents and writedowns for store improvements evenly over the years of leases. Not following the rules can increase quarterly profit.

Lease accounting can lead to a number of problems and an examination of these issues can bring forth a lot of classroom discussion. One question that students should think about is why most of these restatements have gone in the direction of reducing pre-tax earnings? Is this the result of honest mistakes or are managers using the details of lease accounting to manage earnings?

What does this say about the accounting profession - are accountants being proactive in uncovering mistakes or are they, as Lynn turner suggests:

The required accounting treatment doesn't affect how much money companies pay landlords. Rather, the rule obliges companies to deduct lease costs more evenly, leading to the spate of earnings restatements.

The required accounting treatment doesn't affect how much money companies pay landlords. Rather, the rule obliges companies to deduct lease costs more evenly, leading to the spate of earnings restatements.

The required accounting treatment doesn't affect how much money companies pay landlords. Rather, the rule obliges companies to deduct lease costs more evenly, leading to the spate of earnings restatements.

``This really demonstrates that accountants are falling into the same old rut they were in before Enron,'' said Lynn Turner, a former SEC chief accountant who now is managing director of research at Glass, Lewis & Co., a corporate governance advisory firm in Denver.