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Layoffs provide opportunity to clear out deadwood while putting severance costs into one-time charge

A friend seemed surprised that her employer appeared to be using company-wide layoffs to get rid of underperformers. She had not realized that generally accepted accounting principles (“GAAP“) indirectly encourage this: When a company does layoffs, it can often segregate the severance costs as part of a one-time charge, instead of recording those costs as ordinary business expenses for the quarter. In theory, the latter approach makes the company’s financial results look better.

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