[nuclearnice1]

> For example, Gryta and Mann report that GE would sometimes artificially boost quarterly profits by selling an asset (e.g., a diesel train) to a friendly bank, knowing that it could then buy back the asset at a time of GE’s choosing.

So fraud?

[akg_67]

If you want to see another example, look into how airlines buy and lease aircrafts or how refrigeration systems of grocery stores are accounted for on accounting statements. Review accounting statements and quarterly/annual reports of large US public companies, you will find all sort of financial engineering. You will find a lot of such financial engineering cases discussed in any MBA Financial Reporting and Accounting classes.

[NoboruWataya]

I'd be interested in reading the book to get more detail on that. Sale and leasebacks (which often include buyback options) are a fairly common capital management measurement in the asset finance sector.[0] GE could have been committing fraud or this could be sensationalist reporting of a mundane financial management technique.

0: https://en.wikipedia.org/wiki/Leaseback

[nuclearnice1]

Great points. It depends on how confident you are in the claim that the primary purpose was “artificially boost quarterly profits.” No particular evidence presented in the excerpt.

[QuadmasterXLII]

So fraud?

[kortilla]

No, it changes the risk profile.

It’s not much different to selling your house to someone and then renting it back.

[lumost]

Claiming the sales as a profit in the above situation is dubious. When I leaseback an asset I previously owned, I am taking a long term liability which is larger than the profit. This is totally fine in the case of something like an office building - a company probably won’t be around or be fit for the lifetime of the building - but dubious for core company assets.

[PakG1]

For a car? A car will definitely not outlast most viable companies. What if it's cars for a car rental company? I believe the car would be a core company asset then. But if you don't label it as revenue, what DO you label it as? I'm not an accountant, only have rudimentary accounting knowledge, but don't see any options other than revenue there.

[endre]

Even I sold and leased back my own car.

[tharne]

It's fraud, but it's legal in the same way insider trading is legal so long as you're a member of congress.

[redandblack]

Remember Lehman CFO did the same at month/quarter end using repos - not ethical, but legal

[antupis]

It is fraud when you don't tell that openly and pad books by it, but it is an okay tactic as a hedging risk as long as you are open about it.

[candiodari]

Meaning as long as you mentioned it in the fine print on page 497 of your financial statement?

[PakG1]

You got a better way to explain the transactions? If you're saying the transactions should be illegal, there are plenty of scenarios where these transactions wouldn't be weird or horrible. How to differentiate which are OK and which aren't?

[Rapzid]

Gaming.