Wednesday, March 31, 2010

Henry Waxman knows enough to be dangerous (and not a jot or tittle more...)

I don't know if everyone has seen this yet, or not, but the following is a copy of a letter from Representatives Henry Waxman and Bart Stupak to the chairman of AT&T, following AT&T's announcement that the new health care reform bill would mean a $1 billion write-down for the company.

Leaving aside, for the moment, the petulance, ignorance and idiocy on display in that letter (though I hope to come back to it), let's briefly discuss a little bit of history for Representative Waxman. We don't need to go all the way back to the creation of the Securities and Exchange Commission in the wake of the 1929 Wall Street crash and the start of the great depression. We can stay within the last decade and talk relevant history.

In late 2001, Enron, a large energy services company based in Texas, went bankrupt. Spectacularly. The reasons for this are varied, and include a business model in which they didn't actually produce anything, and there was never a legitimate reason for the company to be valued as highly as it was at the peak. Essentially, Enron was a bubble, but the bubble had been sustained by some fraudulent accounting.

Well, clearly, the Enron bankruptcy was disastrous for many people. Equally clearly, what some people did was just plain wrong. So Congress sprang into action, as it is wont to do (as Rahm Emmanuel said following the Obama election, "you never want to let a crisis go to waste") and, in 2002, passed the "Public Company Accounting Reform and Investor Protection Act," better known as Sarbanes-Oxley. One can debate its efficacy (which is, frankly, unknowable) vs. its cost (which is considerable - a boon to accountants and lawyers, not so much to the rest of the world [as is so often the case when Congress passes legislation]) but it is the law of the land, and businesses need to comply with it.

So here are a couple of brief summaries of part of what Sarbanes-Oxley requires of corporations and their accountants and officers.

Summary of Section 401
Financial statements are published by issuers are required to be accurate and presented in a manner that does not contain incorrect statements or admit to state material information. These financial statements shall also include all material off-balance sheet liabilities, obligations or transactions.

Summary of Section 409
Issuers are required to disclose to the public, on an urgent basis, information on material changes in their financial condition or operations. These disclosures are to be presented in terms that are easy to understand supported by trend and qualitative information of graphic presentations as appropriate.

This is really pretty easy to follow. A publicly-traded corporation is legally required, when something happens that materially affects its bottom line, to make that information known to current and potential investors. That is to say, they must - must, under penalty of law - declare that things which are going to affect the bottom line are going to affect the bottom line. They must do it in forms which are legally required to be filed with the Securities and Exchange Commission.

When the chairman of AT&T stands up, or issues a press release, saying that the new health care law is going to have $x million dollars of impact on AT&T's bottom line, he is not being partisan. He's not engaged in Obama-bashing, or trying to subvert the Congress. No, he's complying, as required, with the law that Congress has enacted.


(Sick of this? Sorry, not done yet. Blame Obama and Pelosi and Reid...)

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