The dot-coms have been quick to learn accounting sleight of hand. In the big Vegas magic acts, tricks are performed with wands and rings, scantily clad female assistants, and the occasional Siberian tiger. The illusions, however, are no less impressive.
Revenues materialize, costs vanish, and investors are hypnotized into parting with their wallets.
While the Internet hardly invented financial legerdemain, there are disturbing signs that dot-com companies have embraced it with unusual enthusiasm. Be that as it may, the SEC is clearly concerned with the accounting shenanigans at many dot-coms. The regulator has asked the Financial Accounting Standards Board, a private-sector body that oversees GAAP, to look at 20 issues that tend to arise in Internet companies' SEC filings. What most concerns the accounting cops is the issue of revenue recognition. Back when investors cared about profits, creative accounting generally meant polishing the bottom line.