I’m really intrigued by the furor over the companies that have announced mega first quarter earnings charges to reflect the impact of ObamaCare.
Again, this initial flurry of write-offs is pretty cut & dry.
The accounting is straightforward: the companies have a future liability on their balance sheets — future benefit payments to retirees for prescription drugs. That liability was being partially offset by a favorable tax treatment that’s being eliminated by ObamaCare. So, the liability has to be restated upward by the amount of the lost tax benefits. That’s done by a non-cash charge to the P&L that must be recognized as soon as it’s evident.
Now, Reps. Henery Waxman and Bart “Bend over” Stupak have called hearings to hassle CEOs about the write-offs.
Couple of points:
1) These write-offs aren’t new news. The companies claim that they warned Team Obama that this would happen.
2) The write-offs are required based on GAAP — auditors won’t be able to sign off on financial statements if the lost tax benefits aren’t recognized,
3) Why do Waxman & Stupak think they can cajole or browbeat the CEOs into withholding material information from their financial statements ?
Do they want the companies to break the law and commit securities violations ?
Even if some of the pie-in-the-sky ObamaCare savings materialize, they are completely irrelevant to this reporting requirement.
(Maybe Stupak thinks he can bag another Executive Order to cover this case).
4) What about companies that face the same situation and don’t recognize the increased future liabilities ?
The law says they have to record the charges in the quarter that the law is enacted.
I see shareholder lawsuits galore if they ‘forget’ and — since they are now well informed of the issue — fail to disclose a material change to their financial condition.
This is going to get interesting …
The Homa Files 
Leave a comment