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How Accounting Tricks Can Affect Earnings Reports

Various accounting methods can lead to different outcomes in earnings reports.

As several recent earnings reports have demonstrated, accounting rules and the way a company files its financial reports can have a major effect on the way its value and profits look on paper.

Bloomberg reports that a major developer in Southeast Asia, CapitaLand, experienced a huge drop in its net income, in part due to an adjustment in accounting rules and also because contributions were smaller than they had been in the past. In the third quarter alone, its profit fell 83 percent, to $62.8 million, while revenue plummeted 58 percent, from S$1.45 billion to S$608.6 million.

On the other end, an accounting change contributed to Verizon doubling its earnings. In a press release, the company stated a remeasurement of the value of its pension plans allowed it to adjust its third quarter earnings to 56 cents per share, which did not include the 7 cents a share "for a non-operational charge.

"Verizon emerges from the third quarter in a strong position to accelerate growth," stated Lowell McAdam, Verizon president and chief executive officer. "We faced significant challenges in recent months, yet delivered results that keep us on track to meet our 2011 earnings and revenue guidance, with great momentum expected entering 2012." 

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