Two auditors and still Orbital’s accounting irregularity couldn’t be caught!

Orbital ATK announced on August 10, 2016 that the investors should not rely on the company’s previously issued financial statements due to some accounting irregularities. The irregularity will lead to the reduction of previously disclosed pre tax income by $400-450M and reduction of revenue by $100-150M. All this is associated with one $2.3 billion long term contract with the U.S. Army that the company inherited through its merger with Alliant Techsystems Inc. The contract will become a net loss over the its 10-year term. The problem is attributed to the existence of one or more material weakness in its internal control over financial reporting. The issue will impact the Company’s 2015 fiscal year.

Not one but two audit firms were involved in the 2015 audit of the company. Deloitte & Touche LLP audited till March 2015 and then PricewaterhouseCoopers LLP took over. Neither were able to catch the error!

Oracle’s lawsuit woes go on

First lawsuit against Google, then with HP; now an ex employee. Oracle lost the first two lawsuits, question is would third time be a charm!

Svetlana Blackburn, a senior finance manager at Oracle has filed a whistleblower lawsuit against the company alleging that she was fired after she resisted preparing unlawful accounting entries. She states that she warned her supervisor that she would report the issue to the authorities.

The company issued a statement stating that Blackburn was fired due to poor performance. On the other hand, Blackburn states that she received a positive performance review only two months prior to getting fired. If Blackburn can prove that her termination resulted at least partly due to her telling her supervisor of the issue, then the ball is in Oracle’s court (no pun intended) to prove that it would have fired Blackburn regardless of her blowing the whistle. How could either party do that – by hiring a forensic accountant or economist to perform a statistical analysis of the employer’s termination history.

What’s at stake:  Compensatory damages for lost earnings and benefits, future earnings assuming that Blackburn would have retired with the company, special damages for emotional distress and punitive damages. Considering that a Senior Finance Manager in the bay area could earn anything from 150K- 200K per annum, rest you can do the math.

Goodwill accounting made easier

Recently FASB announced that Private entities could chose to account for Goodwill in a simpler manner. Instead of doing an impairment test every year to get to the value of Goodwill (which is what Public companies need to do), private companies can chose to amortize Goodwill on a straight line basis over a period of 10 years or less. The companies will have to do an impairment test only in case of a significant triggering event, e.g. a substantial decline in operating results or the loss of a key employee.  The new standard will also allow companies to do the test at an entity-wide level rather than at a reporting unit level.

This is definitely a cost saving as well as time saving process for small private entities.