When GAAP Misleads
Examples of how the equity method can distort reported results in certain situations
Our work most often results in uncovering situations where management choices related to accounting policy or disclosure practices result in giving investors an overly rosy picture of the company’s performance. However, in some circumstances, Generally Accepted Accounting Principles (GAAP) themselves can give investors a misleading impression of what is really going on. Equity method accounting can do this and is something that is seldom detected by screening tools. We will examine the mechanics behind these distortions and walk through examples of companies where we have recently seen this problem including Altria (MO), Philip Morris (PM), and Anheuser-Busch InBev (BUD).