In a filing with the Securities and Exchange Commission on Monday, Merrill Lynch said its cash flow statements for 2005, 2006 and the first three quarters of 2007 were wrong. The statements overstated cash provided by derivatives financing transactions. But, lucky for them, they made another mistake, overstating cash used for trading liabilities. So no big deal, right? Take a little from here, add a little there. It offsets.
Except that we have no idea what this means. What exactly did Merrill get wrong? The actual filing is extremely vague about these errors and it would be helpful to know how and why these were made. It's hard to be confident that Merrill understands its exposure to various derivatives if it only discloses non-specific errors and provides no detail. Anyone care to venture a guess what Merrill's mistakes were?
Merrill 8-K [ML.com]
Posted by guest, Feb 27, 2008 9:37AM
Reporting financials has a new twist to it these days: GAAPP and non-GAAP. Since most financial readers don't understand derivatives, you show the gain/(loss) then "adjust the gain/(loss) in the income statement or the "adjusted revenue statement' (my favorite!).
Then the CEO opines, "Since derivative gain loss is not our main business, investors get a better view of the business after our adjustments.......... hahahahahahaahah