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The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis. All posts prior to September, 2007 are in the public domain, but after September 4, 2007, only subscribers to The Analyst's Accounting Observer will see all posts going forward. Only selected, occasional posts will be released to the public domain from September 4 forward.

H&R Block Slips Into The Bizarro Universe
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Posted by: Jack Ciesielski 2/24/2006 8:41 AM
Remember the "Bizarro-Jerry" episode of Seinfeld where everything was inverted - Jerry had a beautiful girlfriend but was repulsed by her "man-hands", Kramer became a trusted executive in a firm when he was mistaken for someone else in the men's room, and Elaine had a trio of new friends who mirrored Jerry, Kramer and George - but were their polar opposites in temperament? It was a play on Seinfeld's fascination with Superman who sometimes visited a mirror-opposite Bizarro universe. (Don't ask me more about this; I was a Marvel Comics guy. What I know about Supe and Bizarro, I learned from Seinfeld.)

Anyway, from the looks of it - H&R Block has crossed over into the Bizarro universe, where up is down, back is forward, and black is white. As even a fourth-grade comics reader knows, Block is in the business of helping people with their taxes - yet in the Bizarro-universe, they can't get their own taxes right. Last June, they announced that they were restating their financials for 2003 and 2004, partly due to income tax accounting errors.

Yesterday, they filed another non-reliance 8-K, warning investors not to rely on financials for the fiscal years of 2004 and 2005, and the first two quarters of the current fiscal year. Reason: errors in determining the state effective income tax rate, resulting in a cumulative understatement of net state income tax liability totaling about $32 million at the end of 2005. The correction, on a cumulative basis, will be material to the January 31, 2006 financials.

Tax accounting, in and of itself, can be a pretty bizarre affair. H&R Block is proving that it can take even more bizarre turns. Superman, where are you now?
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