Categories
Accounting

Accounting news roundup

Categories
Accounting

Nortel completes latest restatement

Nortel released their 2005 financials Friday and completed more restatements of prior years’ results. The restatements related to revenue recognition and decreased revenues and net income because the revenue should’ve been booked in different periods.

Maybe this will mark a turning point for the Canadian communications equipment company and they can retain (or regain) their position as a market leader. The fact they released these disappointing results on a Friday afternoon is of course a little trick to reduce their media exposure. Not everyone is fooled!

Categories
Auditing

Nortel’s revenue recognition wrinkles

Om Malik, writer at Business 2.0 and power blogger, has posted his thoughts on the Nortel announcement from a couple days ago that they would have to restate their earnings again. His reaction is one of incredulity that Nortel, “a big NYSE company,” could actually not be able to get their accounting straightened out after all this time. Let me take a stab at an explanation.

Nortel BramptonThe thing about accounting is that minor changes have trickle down effects in many related accounts and indeed many different periods. A discovery of an error in an estimate for prior years’ revenues (estimates would be required if multi-year contracted sales arrangements are used, which they most certainly would be for Nortel) would have an effect on every set of financial statements from that year forward. Because Nortel is so large, public, and has operations in many countries (and is listed on both the NYSE and the Toronto Stock Exchange), it takes the auditors a long time and a lot of work to sort through the changes and restatements and their many side effects. And it’s busy season too.

Having seen the accounting inside many businesses up close and personal, I think the average observer would be very surprised at the amount of errors and issues auditors have to clean up and/or sort through as part of their job of rendering an opinion on the fair presentation of the statements.

Categories
Auditing

Revenue recognition and Nortel

Nortel BramptonNortel Networks Corp. once again will have to restate its financial results to fix accounting mistakes, the company said on Friday as it posted a fourth-quarter loss of $2.2 billion.

Their chief executive maintains that the revenue was just recognized in incorrect periods, from 2002 through 2005.

Revenue recognition is definitely a touchy subject these days, I know we certainly spend more time nowadays on it than we used to. We have checklists to ensure we’ve considered every different aspect of sales arrangements and there is a note to the financial statements concerning how and when revenues are recognized.

Since Nortel is large (complicated) and public (risky), the audit could take quite long and I wouldn’t be surprised if there are a handful of public accountants who are there each year more often than they are at their own office.