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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, 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.

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Deltic Timber: A Happy SAB 108 Adjustment
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Posted by: Jack Ciesielski 3/12/2007 5:42 AM
When you think of SAB 108 adjustments, you naturally expect a cut to retained earnings. But not all of the SAB 108 catch-up adjustments carry a sting.

Take Deltic Timber, for instance. The lumber company's 10-K showed that the firm boosted its retained earnings by $1,767,000 at January 1, 2006. It had not properly capitalized interest incurred on all of its real estate projects, and used the occasion to bring investment in real estate and deferred taxes up to snuff at the same time. In Deltic's case, those adjustments were material.

On the other hand, it also used the occasion for a general balance sheet housecleaning and cleaned up its incorrect amortization policy for deferred charges and incorrect accrual of liabilities. Those corrections were not material - but they were run through retained earnings anyway.

No harm done - but SAB 108 is really for the errors that now appear to be material under either of the methods of error evaluation - rollover or iron curtain. Immaterial errors really belong in earnings, not tossed into the SAB 108 stew.
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