Post-Enron rule costs Cisco £306m
Network equipment maker Cisco will take a non-cash charge of between $200m (£122m) and $500m (£306m) following the adoption of post-Enron accounting rules in its quarterly accounts filing.
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The charge relates to the company’s purchase of Andiamo Systems, a storage switch developer, which it will acquire in 2004, according to reports.
Cisco first invested $84m in Andiamo in April 2001 before obtaining the rights to acquire the company at a later date.
To date Cisco has expensed the investment in Andiamo as a research and development cost, but it will now account for it as a consolidated entity.
According to the new rule – Fin 46 – put out by the Financial Accounting Standards Board in January, companies who are the primary beneficiary of a ‘variable interest entity’ must include the entity’s assets and liabilities in their consolidated accounts.
The rule was introduced in the wake of the Enron scandal, which saw the former energy giant hide masses of debt by keeping it off its balance sheet.