As you can already imagine, the quarter ending Sept. 30th, are gonna see a lot of companies rushing to blame their shortfall on Hurricane Katrina. "We found that the hurricane affected our sales of CRM software". Of course the discerning investor has to decide for him or herself how legitimate the excuse is, but on the issue of GAAP accounting it is � quite clear according to Jack Ciesielski:
The question: how will those setbacks be accounted for? An article in last Friday’s Wall Street Journal by Diya Gullipalli raised the “extraordinary” issue: should costs and losses linked to Katrina’s devastation be classified as extraordinary in the income statement?
The answer according to GAAP, is no. And it’s a good answer. “Extraordinary” classification depends on whether the dollars involved are related to an event that’s both unusual and infrequent. Cruel as this storm was, hurricanes in coastal areas are not unusual or infrequent. They are, in fact, recurring events. The size of this one is what makes some players propose an extraordinary classification.
Ultimately, what's GAAP may be somewhat irrelevent here, but it's still a good idea to be skeptical around earnings season.
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