"Fishy accounting" or "awful close to a con job" or "Hollywood accounting" seemed like rude ways to refer to accounting practices that purposely gussy up a company's books. So the good people of the financial community came up with the euphemism "aggressive accounting."
Sometimes these steps can be illegal, or very close to illegal. In these situations, you can call it "aggressive accounting" the way you could call World War II "aggressive diplomacy." Other times, the accounting practices don't cross a moral line, but just put a company's finances in the best possible light.
The truth is that accounting seems pretty straightforward, but there is a lot of grey area. Expenses and revenues can be categorized in a lot of different ways, or the timelines of payments and revenues can be massaged to take advantage of loopholes. Like how a good lawyer can make things legal (or at least seem legal) that a bad lawyer couldn't, a good accountant can get aggressive with the books and save (or even make) a company money.
There are a couple of main reasons for aggressive accounting. A company might look to lower its tax bill, so its accountants structure things to take advantage of the fine print of the tax code. Or a company might try to make its revenue and profits look as big as possible, in order to impress shareholders or entice an acquisition offer.
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Finance: How Do Some Accountants "Cook t...103 Views
Finance allah shmoop we'll have new Some accountants cook the
books Ah those hollywood accountants You know they just make
up numbers to mess with poor naive innocent little actors
and actresses Brad pitiful is making a movie about an
alien who comes to earth and gets elected president brad
gets fifteen percent of the movie's profits as compensation Well
the flick is a block but a a monster hit
doing two hundred million box the box office another one
hundred million in licensing revenues from netflix the network's youtube
and like well brad has his eye on a shiny
new g six jet and has all said to buy
one when the studio says sorry no profits Well how
can this be He wonders the studio accountant lucky jim
here does the math Well the two hundred million dollars
was just box office sales and the theaters keep half
the money So that's one hundred million bucks to us
Same deal with the aftermarket hundred million So only fifty
million came to us Brad says don't i get fifteen
million of that new small thing called production costs while
we needed toe actually make and then market your movie
Well the movie cost eighty million dollars a shoot And
then we spent thirty million dollars to market it Well
brad sighs thinking about a much smaller plane and says
well then okay that's one hundred fifty million to you
and one hundred ten million in expenses So we made
forty million dollars and i get six million write Well
here comes the book cooking paradigm that eighty million dollars
wasn't spent the day before the movie rolled out into
theaters It was spent years beforehand and renting money costs
money so the studio had to use its credit I
even rent money from banks and partners to fund the
movie's production Well the studio borrowed eighty million bucks for
five years in fact and then another thirty million for
two years The market it now this is extremely risky
capital And if this movie had bombed then the banks
might have lost everything So if you were the bank
would you charge just three percent for that extremely risky
capital You have no way So the studio could have
rightly told the producer tio go fund himself you know
to fund the movie elsewhere and get whatever interest rate
on the money he could find and the studio would
match it And surprise surprise Other than in somalia there
were no takers Not a single lender was willing to
take on such enormous risk even at a twenty percent
interest rate So the studio generously loans the production money
at fifteen percent interest and here's the math fifteen percent
on eighty million dollars for five years That's twelve million
of interest per year for five years or so sixty
million dollars in total And that fifteen percent interest rate
was a gift The real market price was more like
twenty percent Well then fifteen percent on the thirty million
for two years to market it Yeah at another nine
million dollars of interest costs So what happened here Well
the interest charges ate up all the profits Yes the
film had operating profit ignoring interest costs over forty million
dollars But it had to rent the money to go
make the film the rental cost or the interest costs
of the money with sixty million dollars for the production
and nine million for the marketing Oh and there's this
other little thing called a distribution fee that studios taken
Return for pushing the film into the difficult to deal
with theater owners and usually that's thirty percent off the
top but those are details So were the books cooked
here No not at all If making movies was such
an easy profitable business well there would be legions of
venture capitalists throwing money at the business the way there
are in silicon valley with computer software engineers Unfortunately hollywood's
heyday was a half century ago and economically hollywood is
dying The studio and the banks behind it have to
charge a very high interest rate to accommodate for the
sad fact that most movies don't make back the money
invested in them Most movies lose money so the one
in ten movies that actually make money have to be
Hey for all the rest of the studio only charged
three percent interest for years I work out great for
brad pitiful in his profit sharing story In a world
where the movie made forty million dollars in revenue and
had only ten million in interest costs With then thirty
million of you know pretax profit well then brad would
have gotten fifteen percent of thirty million or four point
Five million in bonus dough But that's not the way
things work The books aren't being cooked here People They're
just being zapped by interest costs It's almost enough to 00:04:33.104 --> [endTime] make you lose your
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