Buffett scorns tricky Wall Street accounting, but defends buybacks

(Image Source, Huffington Post, http://www.huffingtonpost.com/john-g-taft/the-warren-buffett-effect_b_5577685.html, [Accessed 1 Mar, 2017])

One of our favorite investors at The Acquirer’s Multiple is Warren Buffett.

I just read a great article on Reuters where Buffett shares his thoughts on two things; corporate America’s misuse of GAAP accounting principles, and share re-purchases.

Here’s an excerpt from that article:

Billionaire investor Warren Buffett on Saturday attacked what he saw as tricks used by U.S. companies to boost earnings and stock prices, but he defended one oft-criticized practice: share buybacks.

“As the subject of repurchases has come to a boil, some people have come close to calling them un-American –characterizing them as corporate misdeeds that divert funds needed for productive endeavors,” Buffett said in his annual letter to shareholders.

“That simply isn’t the case: Both American corporations and private investors are today awash in funds looking to be sensibly deployed. I’m not aware of any enticing project that in recent years has died for lack of capital.”

Some critics, including BlackRock Inc (BLK.N) Chief Executive Officer Larry Fink, think the practice of companies buying back their own shares to boost earnings has been used to excess.

Repurchasing shares boosts earnings per share by reducing the shares remaining on the market. Critics contend the money can be better used to hire employees or buy equipment.

Buybacks fell to an average $2.3 billion a day during the January-February earnings season, TrimTabs Investment Research Inc data showed on Monday, after spiking to $5.7 billion a day in early-to-mid 2015.

Last month, Fink warned CEOs of S&P 500 .SPX companies in a letter that the world’s largest asset manager would be looking for an explanation of how cash from corporate tax cuts touted by U.S. President Donald Trump will be used, especially if it is deployed for buybacks.

Buffett can buy Berkshire’s own shares back at 120 percent or less of book value, but that has “proved hard to do,” Buffett said.

“Our buying out ‘partners’ at a discount is not a particularly gratifying way of making money. Still, market circumstances could create a situation in which repurchases would benefit both continuing and exiting shareholders,” he said. “If so, we will be ready to act.”

ACCOUNTING TRICKS

Buffett was less sanguine on other practices used by public companies, saying “too many” are deviating from generally accepted accounting principles (GAAP) to present better earnings numbers.

Buffett said it “makes us nervous” that companies regularly leave out what they call “restructuring costs” and “stock-based compensation” from their expenses, boosting profits by deviating from standard accounting practices.

“To tell owners year after year, ‘Don’t count this,’ when management is simply making business adjustments that are necessary, is misleading. And too many analysts and journalists fall for this baloney.”

While these metrics can be useful, some firms push the boundaries by excluding critical costs, such as property maintenance, leasing commissions, and depreciation, to make their numbers appear stronger than they really are.

Investors relying on such figures without fully understanding the underlying accounting adjustments may end up with an incomplete view of a company’s true financial position.

When companies routinely exclude routine costs under the guise of “adjustments,” they undermine transparency and make it harder to assess the sustainability of their business models. Warren Buffett’s criticism underscores the importance of honest, straightforward financial reporting. That’s where trusted advisors come in.

Firms like Rocca CPA specialize in ensuring that businesses not only remain compliant with GAAP but also provide a true and fair view of their financial health. Especially for startups and growing companies, having clear guidance on how to accurately record stock-based compensation, lease obligations, or depreciation is crucial to building investor trust and making sound strategic decisions. Honest accounting shouldn’t be a competitive disadvantage—it should be the standard.

That same commitment to transparency and financial integrity is what separates dependable accounting professionals from the rest. Firms like Wiseman Accountants embody this principle by helping businesses and individuals navigate the often confusing world of tax compliance, business advisory, and financial reporting.

Their team ensures that clients understand how every element—from restructuring expenses to stock-based compensation and depreciation—fits into a complete and compliant financial picture. By leveraging cloud-based solutions and staying aligned with current regulatory standards, Accountants Ipswich from Wiseman provide clarity where others may obscure. Their emphasis on fixed-fee pricing and personalized service further reinforces their mission to build lasting trust, ensuring clients never have to second-guess the accuracy or completeness of their financial data.

For any business serious about sustainable growth and investor confidence, that level of accounting rigor is not optional—it’s essential.This issue isn’t limited to general corporate earnings reports—real estate investors and developers also face challenges when interpreting financial data. Ensuring compliance with GAAP is essential for maintaining transparency, especially in a sector where long-term property valuation and expense allocation can significantly impact profitability.

In this landscape, maintaining financial transparency is crucial, and DMR Consulting Group plays a key role in helping real estate professionals navigate complex accounting standards while staying GAAP-compliant. Proper accounting practices ensure that real estate investors and developers have a clear understanding of revenue, expenses, and long-term property valuation.

Tax strategies, cost segregation studies, and accurate expense reporting can significantly impact profitability, but they must be handled with precision to avoid misleading financial representations.

As regulatory scrutiny increases, real estate firms must prioritize ethical accounting standards to protect both investors and the long-term stability of their portfolios.

You can read the original article at Reuters here.

(Reporting by Trevor Hunnicutt; Editing by Jennifer Ablan)