SOURCE: AXcess News

April 18, 2006 09:00 ET

AXcess News: New Accounting Rules Wreak Havoc With Stocks

RENO, NV -- (MARKET WIRE) -- April 18, 2006 -- New accounting rules are wreaking havoc with stocks as non-cash item reporting of options, and even potential liabilities, are affecting public companies' income statements dramatically and panicking investors into over-reacting in the market.

Pending changes in the way US corporations are required to account for their pension plans would have reduced General Motors' "net worth" to less than zero -- had they been in effect last December.

The rules, promulgated recently by the Financial Accounting Standards Board, a private group that sets the standards for financial statements by public companies, are designed to provide more clarity about a company's true assets and liabilities.

The goal is to make "basic financial statements more complete, useful and transparent," George Batavick, a FASB member, said last month.

Itronics, Inc. (OTC BB: ITRO) reported its year-end results Monday, showing a 73 percent increase in net loss due primarily to accruing $1.45 million in non cash "loss on derivative instruments" that were related to financing, as required by current accounting standards. The news panicked investors who sold down the enviro-ag company's shares nearly 18 percent as a result of a non-cash item without realizing it was FASB's rules change, not dismal results, that tore such a huge hole in the Reno-based company's financial statement.

Itronics, while a small company, manufactures the only pure 5-ounce silver bar made in America, which has seen price increases four times this year already due to silver's march into record prices per ounce, closing Monday over $13 per ounce for the first time in 25 years. The benefit to shareholders is that the silver bars are a by-product of its core environmentally safe liquid bulk fertilizers that in 2006 are showing higher demand due to the high cost of nitrate-based fertilizers.

Itronics incurred more costs related to obtaining approvals in three states to market its fertilizer which required environmental approval of its labeling in each market, a long and costly enterprise, only to have FASB rules make it look like dismal results due to non-cash items related to financing -- not operations.

Just wait until General Motors posts under the news rules if you want to see unbridled panic should investors not become familiar by then with the new FASB rules' affect on companies financial statements.

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