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Accounting

Tangled web they wove

Over at the AAO Weblog, there’s an interesting post concerning the Adelphia fraud and an “enabler”, Scientific-Atlanta, which is now a unit of Cisco.

Around August 2000, Adelphia asked Scientific-Atlanta to increase the price of digital cable television set-top boxes it was selling to Adelphia – then kick back the difference to Adelphia in as “marketing support” for moving the set-top boxes.

How did the scheme work to increase earnings? Adelphia capitalized the set-top boxes at the inflated purchase price (and amortized the cost over more than one period) and the marketing support kickback was recorded as a reduction of ordinary marketing expense!

Ingenius! Now if Adelphia had just channelled their creative energies to building a legitimate business… Anyway, this is news because the SEC accused Scientific-Atlanta of aiding and abetting the fraud.

Without admitting or denying guilt, Scientific-Atlanta is settling the charges for $20 million.