Accounting in the COVID era is more subjective than ever
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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
Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?
This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.
Could waiving patents increase the global supply of COVID-19 vaccines?
India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy continues reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
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