Meta Auditor EY Raised Red Flag on Data-Center Accounting
4 31Meta Platforms' latest annual report contained an unusual, cautionary note for investors. From a report: The tech giant's auditor, Ernst & Young, 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.
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.
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."
4 comments
The AI-funding Jenga (Score: 5, Insightful)
by greytree ( 7124971 ) on Thursday February 12, 2026 @07:10AM (#65984380)
It can't be long now until this very tall, very wobbly tower finally comes crashing down.
Translation (Score: 5, Insightful)
by NotEmmanuelGoldstein ( 6423622 ) on Thursday February 12, 2026 @08:03AM (#65984442)
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.
Re:Here's a non paywalled article instead (Score: 5, Insightful)
by DarkOx ( 621550 ) on Thursday February 12, 2026 @08:45AM (#65984496)
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.
On the surface, this feels fishy. (Score: 5, Informative)
by nightflameauto ( 6607976 ) on Thursday February 12, 2026 @08:44AM (#65984488)
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.