Accounting Fiction?

A recent article in the Wall Street Journal notes that as of May 26, 77 percent of the 485 companies in the S&P 500 that had reported earnings beat earnings, compared to the historical rate of 66 percent. What is even more surprising is that the earnings beats are 6.9 percent above expectations, compared to a 4.1 percent historical average. But accounting choices, which have been labeled as potential earnings manipulation, may be the cause. For example, Google extended the life of its server infrastructure from four years to six years. The extension added 6 cents per share to earnings due to lower depreciation. The company also shifted employee stock awards from January to March, which also increased reported earnings. And Carvana, which was expected to lose $2.03 per share only lost $1.51 per share. The company had taken charges in the previous quarter when used car prices had plummeted and expected to sell cars for less. When used car prices increases, the company unwound those loses, increasing earnings per share by $.48, almost all of the earnings beat.