Posts filed under 'Corporate World'
Harry Potter magic failed to save the drop in profit of St.Ives(the printer of Harry Potter books) due to accounting errors in the company’s book. The error was discovered in the in store promotion division of the company. The bulk of the errors occurred between October and December last year and included mistakes over customer rebates, a failure to write off unrecoverable costs, and an over-valuation of work in progress. The errors followed a rapid expansion of the St Ives in-store printing division.
The finance director, Ray Morley, declined to name the financial controller responsible but said “the errors started with him and in an ideal world they would have been picked up earlier … There is no suggestion whatsoever that this was in any way deliberate”. Mr Morley accepted ultimate responsibility.
Source:Guardian 08/29/2006
But could it be that this was a case of extremely high expectations from the staff pushing them to cook the numbers. Considering the fact that most of the errors happened at the time of rapid expansion, the company might not have been able to keep upto the expectations of the outsiders and the expansion did not go well financially, pressurizing the staff to make numbers look more appealing than the actual.
January 16th, 2007
Srinath Batni, an executive director who heads up the Strategic Groups unit for the Bangalore-based software and IT consultancy firm Infosys, was fined about $10,700 for failing to notify the company, in a timely manner, that he sold 10,000 company shares the week before, according to a regulatory filing. Infosys’ insider trading rules state that directors and officers may buy or sell company stock only after prior notification is given to the company. Further, notification must also be given within one working day of the stock sale.
Batni notified the company of his intent to sell shares; however, he was eight days late reporting the completed transaction to the company. Although the company said Batni’s violation was inadvertent, it was considered a technical violation in the eyes of the Infosys audit committee, which is responsible for monitoring management’s compliance with business conduct standards.
Source: www.cfo.com 08/30/2006
A good example of the independence and strict monitoring that should be done by the audit committee. By imposing the fine the audit committee showed its intent to keep a good eye on the financial working of the company and being proactive about compliance with rules and regulations.
Even though the fine amount looks like a meager $10.7K, the severity of it can be seen by the fact that it is actually is a quarter of Batni’s salary for the year. There are rules and one needs to adhere to them or face the stiff consequences.
January 16th, 2007
Recently read an article about an “informal” inquiry from the SEC of IMAX Corp, the movie theater company. The issue here is that the company inflated its revenue by recognizing revenue from phantom movie theaters, the theaters that werent yet opened.This happened in the year 2005. The infated revenue was to attract a buyer or a merging partner.
A class-action lawsuit has been filed against IMAX Corp., its former CFO, and two other executives alleging that they made “false and misleading statements” about the company’s financial health. The former CFO resigned and took another job at another publicly listed company. According to the regulatory filings of the company the CFO had told the company about his plans to pursue opportunities outside several months ago.
I agree that the CFO resigned, but my question here is how could he be offered another job in another publicly traded company. Did the company offering a job not ask the CFO why he wanted to leave the previous company. Didnt they verify his prior work history. How could a CFO who is alleged in a lawsuit to be involved with creating false and misleading statements be allowed to be a part of another publicly traded company. Shouldnt he first be acquitted of charges on this count before he can head the finance department of another firm? Isnt there a rule somewhere which prohibits people with a lawsuit against them, being a part of a company?
CFOs are the ones who are resposnible for the money of the company, if they are not trustworthy, the company is looking towards the Bankruptcy court or SEC inquiry.
January 16th, 2007
Backdating of stock options is one of the latest hot topics in the acccounting world. There are around 100 companies which have declared that they have backdated their options, there have been restatements on the account of backdating and a dozen or so lawsuits on this issue. So what exactly is backdating?
Backdating involves assigning a stock option contract an earlier date than its actual grant date. The date assigned is an earlier date when the underlying stock traded at a lower price than it did on the day of the grant. By doing this the stock option holder gets an “in the money” options grant. In the money in literal terms means that the option has some value, this happens when the strike price is less than the market price. Such grants need to be expensed. Some companies, however, accounted for them as at-the-money grants, which under old accounting rules, did not need to be expensed. (Under FAS 123R, all options need to be expensed.)
Backdating of employee stock options is not necessarily illegal provided no documents have been forged, backdating is clearly communicated to company’s shareholders, it is properly reflected in the earnings, and backdating is properly reflected in the taxes.
The new FAS 123R maybe blamed for this change in the stock option backdating landscape. Under the old accounting rule for stock options, firms did not have to expense options at all unless they were in-the-money. However, under the new FAS 123R, the expense is based on the fair market value on the grant date, such that even at-the-money options have to be expensed.
Once again the companies will have to take a look at their internal controls and strengthen their option accounting and record keeping.
January 16th, 2007