COVID-19

Accounting in the COVID era is more subjective than ever

Marielle Segarra Aug 5, 2020
Heard on: Marketplace
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An empty Wrigley Field in Chicago on what would have been Major League Baseball's opening day. Since Disney didn't air MLB games, it didn't have to count the licensing cost in its financial results. Scott Olson/Getty Images
COVID-19

Accounting in the COVID era is more subjective than ever

Marielle Segarra Aug 5, 2020
An empty Wrigley Field in Chicago on what would have been Major League Baseball's opening day. Since Disney didn't air MLB games, it didn't have to count the licensing cost in its financial results. Scott Olson/Getty Images
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Disney reported a rare quarterly loss Tuesday — nearly $5 billion. Most of its business segments, from theme parks to cruise lines, are faring poorly in the pandemic. There was a bright spot, though: Steep losses were somewhat offset by the performance of its media business. Disney explained that one big reason has to do with an accounting decision it made.

Disney pays for the rights to broadcast sports like baseball and basketball. And under corporate accounting rules, when companies crunch their quarterly numbers, they’re not supposed to factor in costs from a purchase like that until they see the revenue. In this case, after the games air.  

Enter COVID. Disney didn’t get to broadcast these games last quarter, which ended in June.

“So essentially, they’re saying since we haven’t broadcasted their season, we haven’t recognized this expense yet,” said Robert Rostan, chief financial officer at the financial education firm Training the Street.

That makes the company’s results look better.

Rostan said this is a standard accounting practice.

Parts of the calculation are subjective, though. For instance: How much of the cost should Disney push to the future? That depends on whether it thinks all of the scheduled NBA and MLB games will actually air. 

The pandemic has created a lot of uncertainty, “and since accounting involves a lot of estimates about the future, it makes the accounting numbers much less reliable,” said Eli Bartov, an accounting professor at New York University’s Stern School of Business.

The pandemic could also tempt some companies to cross the line. They might use accounting tricks to smooth out revenue so it looks steady from quarter to quarter. Or include other metrics in their financial statements that say, well, if it weren’t for COVID-19, here’s what our numbers would have looked like.

“That has a time and a place, but we all know that you can’t keep that up forever,” Rostan said.

Because at a certain point, the pandemic becomes the new normal — and those kinds of metrics can be misleading.

COVID-19 Economy FAQs

Are states ready to roll out COVID-19 vaccines?

Claire Hannan, executive director of the nonprofit Association of Immunization Managers, which represents state health officials, said states have been making good progress in their preparations. And we could have several vaccines pretty soon. But states still need more funding, she said. Hannan doesn’t think a lack of additional funding would hold up distribution initially, but it could cause problems down the road. “It’s really worrisome that Congress may not pass funding or that there’s information circulating saying that states don’t need additional funding,” she said.

How is the service industry dealing with the return of coronavirus restrictions?

Without another round of something like the Paycheck Protection Program, which kept a lot of businesses afloat during the pandemic’s early stages, the outlook is bleak for places like restaurants. Some in the San Francisco Bay Area, for example, only got one week of indoor dining back before cases rose and restrictions went back into effect. Restaurant owners are revamping their business models in an effort to survive while waiting to see if they’ll be able to get more aid.

How are hospitals handling the nationwide surge in COVID-19 cases?

As the pandemic surges and more medical professionals themselves are coming down with COVID, nearly 1 in 5 hospitals in the country report having a critical shortage of staff, according to data from the Department of Health and Human Services. One of the knock-on effects of staff shortages is that people who have other medical needs are being asked to wait.

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