(FORTUNE Magazine) – Now let's see if I've got this right. AOL Time Warner (my sainted employer) takes "a one-time, noncash charge" of about $54 billion in the first quarter. Since the company was otherwise breaking even, that charge got reported as a loss for the period. A $54 billion loss. Can one company lose that much money? That's more than the revenues of 483 of the FORTUNE 500. The nation had a cow when Enron curled up and $63 billion of market capitalization wasn't there anymore. Now the company I work for says it lost almost that much--not in market cap, just on the income statement--in the first quarter. "Humongous" is not enough of a word for this loss.

But so what? It was "noncash." It didn't affect operations. The stock has been suffering for months, but it didn't plunge on the announcement of that charge. It was a one-day story in the newspaper. And of course it isn't the only such story. JDS Uniphase took a charge almost as big--$50 billion--last year. Qwest expects a charge of some $30 billion; Vivendi took a charge of $14 billion. Everybody nods. We all know these mega-charges are the result of a new accounting rule. It's kind of complicated. It doesn't require companies to send cash out the door. It's tempting for managers and investors to think this is some wonkish, irrelevant mumbo-jumbo that makes the pocket-protector set feel better, so let them have their fun and we'll move on.

But we can't. The numbers are just too big. We've never seen so many companies get hit by charges on anything like this scale. We've got to figure out how to think about it. Like it or not, when a single company loses more money than the total economic output of Albania, Armenia, Bolivia, Mongolia, and Namibia combined, it's time to pay attention.

The rule change is simple in concept. When a company buys another company, the price it pays in excess of the target company's book value is deemed goodwill. Under the old rule, it had to be amortized over a period of up to 40 years; that is, every year a little bit of it had to be deducted from the company's profits and also from the "goodwill" asset on its balance sheet. But this rule assumed unjustifiably that goodwill is a so-called wasting asset, like a machine that inevitably wears out. In reality it may not lose value at all, and sometimes it even gains value.

So the new rule requires companies to evaluate their operating units at least annually and ask if their fair value to an outside buyer today is greater than their recorded value, including goodwill. If so, all is well. But if not, the company must take a charge for the difference, all at once. The companies that have taken the hugest charges all made major acquisitions near the height of the stock market insanity. The charges are in effect their confession of being terrible investors.

Can we shrug the charges off because they're noncash? No way. Think of it like this. Virtually all these acquisitions were paid for with stock, which the acquiring company issued for that purpose when the price was a lot higher than it is today. If the acquirer issued, say, $50 billion of stock, it could have sold that stock to the public and put the $50 billion in the bank. Instead it traded the stock for a company. If it had taken the cash, it would today have $50 billion plus interest. Instead it has an acquired company that is now worth, say, $10 billion. That is a bad trade. It represents a vast amount of genuine value down the drain.

So these charges are an acknowledgement of awful management in the past. But do they hold any relevance for the company's future? They sure do--and it isn't what you might expect. These huge charges create a mammoth one-time loss, but they also vaporize goodwill amortization charges that were eating away at profits relentlessly every quarter. With those gone and the one horrific quarter over with, reported profits actually look better than before. In addition, the big write-off takes a giant chunk of capital off the balance sheet. So when investors calculate the critically important measure of return on capital, it, too, is miraculously improved.

That's right--the effect of the new rule is to make these companies look like much healthier performers, even though their miserable shareholders don't feel any improvement. As noted above, the rule change actually follows a certain logic. But there's a danger the change will wipe out not just amortization and capital but also memories of how egregiously these companies wasted shareholders' wealth. If we forget that lesson, the next M&A frenzy could pound investors even harder than the last one did.