Meta Auditor EY Raised Red Flag on Data-Center Accounting (wsj.com)
- Reference: 0180779488
- News link: https://tech.slashdot.org/story/26/02/12/121243/meta-auditor-ey-raised-red-flag-on-data-center-accounting
- Source link: https://www.wsj.com/livecoverage/jobs-report-unemployment-stock-market-02-11-2026/card/meta-auditor-ey-raised-red-flag-on-data-center-accounting-TrOVlxGZGnL37d8Dv01h?msockid=3de702e14e97667e2e0717d14fc1671e
> The tech giant's auditor, Ernst & Young, [1]raised a red flag over the financial engineering Meta used to keep a $27 billion data-center project off its balance sheet. While EY ultimately blessed Meta's accounting treatment, the firm flagged it as a "critical audit matter." This means it was one of the hardest, riskiest judgments the auditor had to make.
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> Such a warning label is rare for a specific, high-profile transaction at a major audit client. Meta moved the data-center project, called Hyperion, off its books in October into a new joint venture with Blue Owl Capital. Meta owns 20% of the venture; funds managed by Blue Owl own the other 80%. A holding company called Beignet Investor, which owns the Blue Owl portion, sold a then-record $27.3 billion of bonds to investors. The joint venture is known in accounting parlance as a variable interest entity, or VIE. Meta said it isn't the "primary beneficiary" of this entity and so didn't have to put the venture's assets and liabilities on its own balance sheet.
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> Meta's assertion that it lacks power over the venture is debatable and has drawn scrutiny from investors and lawmakers. Meta is a hyperscaler and knows how to run data centers for artificial intelligence, while Blue Owl is a financier. Whether the venture succeeds economically will come down to Meta's decisions and know-how. In its report, EY said auditing Meta's decision "was especially challenging due to the significant judgment required in determining the activities that most significantly affect the VIE's economic performance."
[1] https://www.wsj.com/livecoverage/jobs-report-unemployment-stock-market-02-11-2026/card/meta-auditor-ey-raised-red-flag-on-data-center-accounting-TrOVlxGZGnL37d8Dv01h?msockid=3de702e14e97667e2e0717d14fc1671e
Translation (Score:4, Insightful)
> ... off its books ...
Our client is acting like a criminal but if we say that, we lose a customer. Worse, they bribe politicians to legitimize their dishonesty: Dammed if we do, Dammed if we don't.
Here's a non paywalled article instead (Score:3)
[1]https://seekingalpha.com/news/... [seekingalpha.com]
[1] https://seekingalpha.com/news/4550750-metas-auditor-questions-decision-to-keep-27b-data-center-off-balance-sheet-report
Re: (Score:2)
What I got from this is that they intend to have a 2000+ acre data center and ~500 people running it. That could be 10000s of servers each person
Re:Here's a non paywalled article instead (Score:4, Insightful)
which is probably reasonable for a hyper-scaler deployment a company like Meta would consider. Most of the hardware is pretty reliable. Everything running on it will be highly fault tolerant. If anything goes wrong nobody local does any actual fix, they pull replacement unit out of stock, swap it, and it boots from SAN and rejoins the hive..
The failed unit is either shipped to some central recovery facility or maybe directly the recycler.
This is what state and local pols NEED to understand about these data center projects, once the construction phase is over they don't mean that many jobs even in the context of a rural county. So they need to be really really careful about any tax abatement schemes etc. You are not going to see a bunch of new housing demand, new economic activity, payroll taxes etc. Just existing residents angry about noise, and their wells drying up.
COLLECT THE PROPERTY TAXES or deny the permits.
Re: (Score:2)
Just saw a story about this. [1]https://finance.yahoo.com/news... [yahoo.com]
Several states are actively trying to slow it down as the tax abatements are around as much as the economic development value, with low job counts. Never a problem though, some state will always go for the gold. From the article, "Hyperscaler developers are increasingly moving from more concentrated markets where opposition has strengthened to "second- or third-tier" states that can offer generation capacity, such as Kentucky or Indiana, where M
[1] https://finance.yahoo.com/news/big-techs-data-center-push-has-sent-electricity-bills-higher-lawmakers-want-to-slow-them-down-144555492.html
On the surface, this feels fishy. (Score:5, Informative)
From the eye-in-the-sky view of this, it looks like Meta knows there's a pretty big risk of either low or no return on investment with this new datacenter. They want it built, but they don't know that the whole purpose for it won't blow-up or disappear in the time it takes to be built. Therefore, they want a holding company to own the majority share of the datacenter, so if it ends up being a financial blunder, they only take 20% of the blame, rather than 100%. It looks from here like a typical corporate structure shell game: hiding assets within "other companies" that are actually outright controlled by the parent, but on paper look like separate entities is a game as old as the concept of corporations itself. Sucks that even an auditor is too scared of the financial giant to say outright that it's bullshit both legally and ethically.
Re: On the surface, this feels fishy. (Score:2)
Under the surface
Feels berserk
As a tightrope walker
In a three-ring circus
Who pays if the project fails? (Score:3)
Is Meta responsible for paying off the bondholders if the project fails? That would seem to be the relevant issue. I am guessing that Meta has committed to purchase services sufficient to pay off the bondholders, but doesn't want that to appear as an obligation on their balance sheet. In that case, they are trying to fool investors and creditors.
Re: (Score:2)
it all depends on how it is structured.
It can be a way of managing project risk. You create a new company to build a thing, with the existing organization as stake holder, and planned primary or only customer. If the project succeeds the parent company acquires the rest of the equity in the child and by extension becomes responsible for the debts, if it does not work out the child company declares bankruptcy and the bond holders are left bag holding.
A lot of people find this objectionable but honestly as l
We already know they're all invested in each other (Score:1)
A YouTuber Patrick Boyle covered it in detail. There is still a lot of money floating around but it looks like it's mostly loans from Banks.
Eventually it'll collapse and when it does those loans will be called in by the Banks and the banks won't have the money for it so you and me are going to have to bail them out because everyone here is too big to fail. It's 2008 all over again.
We could of course just temporarily nationalize the banks like some of the Nordic countries did when they pulled this sh
There's accounting ... (Score:1)
... and then there's Meta-accounting.
Financial engineering (Score:2)
Is "financial engineering" a real thing?
The AI-funding Jenga (Score:5, Insightful)
It can't be long now until this very tall, very wobbly tower finally comes crashing down.
Re: (Score:2)
Does it matter? Facebook made $60bn net last year (including another year of insane double digit billions of losses on the metaverse). The AI funding Jenga block doesn't impact these tech companies. They literally aren't held to account for spending a measly little sub $30bn figure. They'll just move on to wasting money on The Next Thing (tm)