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Notes. The auditors agreed with Colgate that tax benefits from
the partnership could be recognized to the extent of the
net-of-tax amount of these transaction costs.
On the issue of consolidation, the auditors endorsed
Colgate's position. Consolidation would not be required until
ABN's retirement, chiefly because the Colgate debt was not
effectively retired to the extent that ABN was sharing changes in
its market value. In the meantime, since Colgate was using its
position in the partnership essentially as a hedge of its
liabilities, and would otherwise have used swaps or other
conventional hedging operations to accomplish the same purposes,
its investment in ACM should be treated in the same manner for
financial accounting purposes as a swap. This would entail the
recognition of mark-to-market changes in the value of its equity
interest on its financial statements.
The Curacao office of Arthur Andersen served as accountants
for ACM. In the course of their review of the results for FYE
11/30/89, the auditors noted two problems with the partnership's
financial statements. The first problem was that the $1,093,750
discount on the sale of the Citicorp Notes was not reflected in
the income statement. The second problem was that the
partnership had included this discount in the book value of the
LIBOR Notes, contrary to provisions of the Partnership Agreement
that required partnership assets to be restated at fair market
value on the last day of the fiscal year. Following
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