Financial Accounting Blog

Wednesday, January 26, 2005

Stock Options. An article at quotes a couple of lobbyists as saying that they plan to mount an attack on the FASB's new rule requiring the expensing of the cost of stock options. That's likely to be an uphill battle given that
The SEC has also thrown its support behind FASB.

Donald Nicolaisen, the SEC's chief accountant, said in a prepared statement that companies should focus their energy on implementing the plan and that the SEC is 'preparing to provide appropriate guidance' to help companies comply with the standard.

Conservatism is Back. Wary Auditors, Clients Worry FASB's Herz
Financial Accounting Standards Board chairman Robert Herz told the Financial Times he is concerned that auditors as well as the companies they audit are acting too conservatively when preparing financial reports especially given the Securities and Exchange Commission's (SEC) endorsement of a principles-based approach.

Herz contends that practitioners are hesitant to be more aggressive because accounting maneuvers are being increasingly scrutinized by regulators, lawyers and even the media, according to the paper.

Thursday, January 20, 2005

Restatements. The NY Times reports that the number of restatements was up again in 2004. Although several theories to explain the increase are proposed, I believe the correct one is that auditors don't want to take any chances so are making clients restate items that in the past would have been rolled over into future numbers.
Some of the restatements may simply reflect the fact that auditors are much more conservative and more apt to instruct a client to restate earnings after finding an error that several years ago might have been overlooked or ignored. The criminal prosecution of Enron's auditor, Arthur Andersen, put accounting firms on notice that times had changed.
Additional evidence of increased auditor conservatism was shown in a recent conference paper that provided evidence that since Enron, auditors are more likely to issue going concern opinions to struggling clients than in the pre-Enron period.

Analysts. says that fewer companies have analyst coverage than anytime since 1995. Where's the Coverage?
Although the number of equity analysts in the United States has climbed 7.5 percent since 2003, up to 3,207 from 2,983 a year earlier, that number is still 9.5 percent lower than it was during 2000...

Wednesday, January 12, 2005

Managing Earnings. USA Today reports that an independent review of Nortel has concluded that company executives juggled figures to earn bonuses.
As the telecom bust spawned layoffs and huge losses at Nortel in 2001 and 2002, there was 'a decline in financial discipline,' the report says.

Dunn and other executives began to 'stretch the judgment' as to when certain charges could be taken, the report says. At the same time, the company started linking the bonuses of top executives with consecutive profitable quarters.
After Nortel posted losses in the first three quarters of 2002, Dunn chose not to report an isolated fourth-quarter profit, 'because performance for the rest of the year had been poor,' the report says.

Dunn, the review says, worked with Beatty and Gollogly to identify $175 million in expenses to achieve a loss. Then, the company reduced the excess charges in the first and second quarters of 2003 in order to erase losses, post consecutive profitable quarters and receive the bonuses, the report says.