Incorrect. The accuracy of the income statement is based on the accuracy of the Beginning and Ending balance sheets. So one would have to verify the beginning Balance sheet also. (BTW thats why R&H started the 2008 Balance Sheet audit in July, not Sept 15th)
The $11 million is a huge mis-direction by Mosky IMO. First it's "pre-tax", 2nd it gives the impression the Retained Earnings will increase by this amount and 3rd, it doesn't take into account a material subsequent event, the Dicon Balance Sheet purchase and the related inventory problems and 4th, liability accurals associated with the various lawsuits. LOL but I'm sure Mosky manual "one-write" accounting system backs this $11M.
Thats why I mentioned the one year period of Mar 1st 2009 to Feb 28th 2010. This period will result in $0 net income, thus the Feb 2010 RE will be, as you state, $2.5 million. By looking at SPNG this way, the reader of the FS can eliminate the various accounting "cut-off" problems. For example, for what period do you expense the legal fees associated with the SEC investigation.
The reasons for the $0 are as follows: 1. the Dicon write down, 2. the costs associated with the lawsuits, 3. increase in payroll, 4. G&A costs 5. income taxes and whatever (BTW the income tax situation facing SPNG is interesting, to say the least). The SPNG of today is much different than the SPNG 12 months ago. Oh yeah., the cost of the SEC investigation.
AI
