Accounting matters. Case in point: Dozens of companies have switched from a last-in, first-out, method, or LIFO, to the more common approach of first-in, first-out, or FIFO, model of accounting for their inventory amid high inflation that could affect the appearance of the bottom line in financial reporting, according to research from investment research software company Bedrock AI.

The difference between the two methods is whether a company reports its oldest inventory—presumably bought at the lowest prices—as what was sold in a given period (FIFO), or whether a company reports its newest inventory—presumably bought at the highest prices—as what sold in a given period (LIFO).

At the heart of the decision is a question of whether to boost short-term earnings amid inflation, as FIFO does by expanding the margin, versus boosting short-term tax savings by increasing costs, as LIFO does.

The trade-off is especially significant in a high-inflation environment, Bedrock AI’s CEO, Kris Bennatti, told CFO Brew: “In a highly inflationary environment, FIFO accounting delays the impact of rising prices on net income while LIFO accounting has a much more punishing impact on earnings.”

Continue reading.—SW

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Cooper Morgenthau, former CFO of African Gold Acquisition Corp. (AGAC) and Strategic Metals Acquisition Corp. (SMAC), was sentenced in late April to 36 months in prison for embezzling more than $5 million from the SPACs. Morgenthau pleaded guilty to one count of wire fraud in January. Along with his prison sentence, he will have to forfeit $5.1 million and pay an additional $5.1 million in restitution.

Morgenthau stole the money from AGAC shortly after its IPO, and from SMAC as it was fundraising for an IPO, according to prosecutors. Morgenthau ultimately lost almost all the embezzled money buying and trading meme stocks and cryptocurrency, according to prosecutors. Morgenthau also falsified bank records, lied to auditors, and improperly transferred money between the two companies to hide his theft.

“With today’s sentencing of Cooper Morgenthau, SPAC promoters have been sent a message that fraud in the SPAC markets will be punished, and greed on Wall Street will be met with serious consequences,” US Attorney Damian Williams said in a statement.

In February 2023, the SEC charged AGAC with “internal controls, reporting, and recordkeeping violations” for giving Morgenthau “control over nearly all aspects of its operating bank account and financial reporting process with little to no oversight.” Those internal control failures allowed Morgenthau to “make unauthorized withdrawals” and “falsify bank statements”, according to the SEC.

Keep reading.—DA

The Federal Reserve voted unanimously to raise interest rates by a quarter percentage point on Wednesday, its 10th such rate hike since March 2022. The move brought the benchmark overnight interest rate up to 5%–5.25%. Interest rates are now at their highest level in 16 years.

The Fed has not yet reached its goal of bringing inflation down to 2%. Nevertheless, Fed watchers saw signs that this might be the central bank’s last rate hike for a while. Dusting off their close reading skills from English 101, they studied the Fed’s latest policy statement and discovered that it no longer used the word “anticipated” when describing future hikes.

“That’s a meaningful change, that we’re no longer saying that we ‘anticipate’” additional increases, Fed chair Jerome Powell said during a press conference.

CNBC’s CFO Council didn’t view the rate hike as a good move, fearing that it might further dampen consumer spending. They are seeing signs of a slowed economy, such as more credit delinquencies and lower consumer demand, they told CNBC, and were concerned that the Fed wasn’t allowing enough time for the impact of the previous rate hikes to be felt before it increased rates again.

“Give it time for things to take hold,” one said. “You just don’t want to keep hiking into that environment.”

Continue reading.—CV

Stat: 22%. That’s how much revenue fell for exercise-equipment company Peloton over the last year. The company has struggled to find a new business model after its Covid-era sales boom ended. (CNBC)

Quote: “Right now, people have money, they have jobs, and so long as that’s the case—even if they slow down in their spending—I think that would be a good scenario and I think that would have a dampening effect on inflation.”—Chipotle Mexican Grill CFO Jack Hartung, on continued strong consumer spending in light of inflation. (the Wall Street Journal)

Read: The US debt fight would be ugly for everyone if it drags out. (Reuters)

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