by: rick telberg
july 28, 2000 (smartpros) ? don’t let anyone ever tell you that accounting mistakes don’t matter, that paper losses aren’t real, that paper profits are, or that sound accounting principles don’t matter. accounting matters. and good accounting makes a difference.
from wall street to hollywood, from washington to kosovo, accountants and financial managers are making decisions every day that either obscure or enlighten, that help to make sound business decisions or help to deceive, that aid human progress or hinder it.
on wall street, some analysts are complaining that aggressive accounting techniques are making it hard for them to evaluate some companies. and that’s not helping the technology sector in particular.
for instance, intel’s decision to include one-time investment gains in its quarterly results has frustrated wall street insiders. computer associates shocked the street with a warning that they would fall short of expectations. compuware corp. followed within a week with its own dismal outlook. some companies, including yahoo! inc. and nortel networks, exclude the costs of acquiring other companies, especially if inclusion would show a loss.
“it’s becoming harder to compare apples to apples in the high-tech industry,” analyst robert johnson at abn amro inc. in chicago told the associated press. “it’s just a massive problem for investors today in the technology field to compare company to company. because of the intellectual capital nature of their products, there are so many questions and more room for flexibility on the reporting side than other industries.”
meanwhile in hollywood, u.s. department of justice investigators have reportedly found that kpmg helped to conceal crooked dealings at cr?dit lyonnais, the failed paris bank.
forbes magazine says justice department investigators in los angeles, working in cooperation with french authorities, found embarrassing, if not necessarily criminal, schemes that “could well attract the attention of accounting regulatory groups.” the report focuses on the two firms’ roles in the 1990 acquisition of mgm/ua by giancarlo parretti and florio fiorini, two italian businessmen now under arrest in italy and awaiting extradition to los angeles to face u.s. criminal charges. parretti and fiorini bribed officials of cr?dit lyonnais to get more than $2 billion with which to buy a number of properties, including mgm, from which they subsequently looted millions of dollars, forbes says. according to the justice department report, kpmg and the law firm of white & case both “played roles in several pivotal transactions involving the misrepresentation by parretti and fiorini of how much debt they owed cr?dit lyonnais,” which would have had a material affect on the deal.
also in hollywood, vivendi’s planned $34 billion acquisition of seagram co. has exposed another accounting scheme worthy of the comic books, not the financial books, according to another forbes report.
the universal studio and music business that’s part of seagram could give vivendi a one-time write-down on studio assets, which will have the effect of boosting reported earnings in future years. vivendi would also have the chance to mark up a lot of its acquisition price to “goodwill” rather than to recording label contracts and movie deals. so even if vivendi winds up with a collection of losing movies, it could still show profit. “nothing is what it appears to be in tinsel town,” said the magazine, “especially when it comes to accounting.”
meanwhile, in war-torn kosovo, rebuilding the country means more than repairing roads, bridges, homes and utilities. it also means rebuilding an economy based on sound business principles.
that’s where tony richings comes in. he’s part of christian aid, one of 300 aid groups at work in the country. but he is neither an engineer, nor a sanitation expert, nor a health care professional, according to the guardian newspaper. he is an accountant. and his presence in kosovo is evidence of the growing recognition that proper financial management is a vital part of humanitarian relief.
“sound financial control and administration are key components of successful operations,” sara packwood, an emergency program manager for christian aid, told the newspaper. “i’ve worked in three different agencies in three very different emergency relief contexts and in each one, qualified accountants were essential for a smooth-running operation.”
richings was the first accountant placed by a new group, management accounting for non-governmental organizations, which helps aid groups handle financial administration issues. mango director alex jacobs told the newspaper, “good intentions are not enough any more. people want outcomes.”
and then there’s nasa, which may have made a $590 million bookkeeping error in its 1999 financial report. “i’m deeply disappointed that the agency that could send a man to the moon now can’t even balance its books to the nearest half-billion,” snickered rep. f. james sensenbrenner jr. (r.-wis.), chairman of the house science committee.
“we made a reporting error,” admitted glen mahone, a spokesman for the national aeronautics and space administration. “it in no way affected operations or the money that was spent,” mahone told the ap. the agency had claimed a credit of $685 million from an item called “recoveries of prior year obligations,” which usually reflects changes in contracted expenditures. when queried, nasa found the entry should have read $95 million. the error was apparently missed by both nasa and its auditor, arthur andersen.
they say that good accounting isn’t as complicated as rocket science. but then again, maybe it is.