- Congress wants financial reporting simplified for easier understandability. I can’t honestly say their desire for more regular updates on what the industry is doing to modernize itself is a bad thing, however. Seems like a good prod for the stiff collars at the helm.
- Here in Canada, there are rumors the federal government may tie the income trust tax to the upcoming budget. The effect would be to make the income trust issue a confidence motion which, if defeated, would trigger an election. Recent polls showing the governing Tories padding their lead over the Liberals add fuel to this fire.
- In the UK, PwC and E&Y ranked at the top of accounting firms in terms of brand strength according to Business Superbrands Council. Brands were rated according to “quality, reliability and distinctiveness within their sector.” I guess they mean the distinctiveness of the logos at the top of the auditors’ report?
- Nortel is going to be restating their results again. I’m really starting to feel sorry for those guys. Nothing epitomizes the current shortage in accountants quite like Nortel’s difficulties.
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!
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.
The 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.
Nortel 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.