View Full Version : Another Enron?
Voice of Reason
26 Jun 2002, 13:47
Breaking news of another big US corporation with massively and fraudulently misstated financial statements audited by AAs. Markets dropping, carnage expected on Wall Street overnight.
Shinboners
26 Jun 2002, 16:54
Yep, it was Worldcom. Profit misstated by almost 4 billion dollars and it seems that expenses (which affect the profit and loss statement) were booked as capital (which puts it in the balance sheet). The thing is, how could the auditors have missed that?
Ok I am a real 'non business type' - so forgive my question if it is the obvious....
Is this the company that owns OzEmail and has a $6.6 Billion misreporting problem and is going to shed 17 000 staff?
If so.......can we see the end of another big ISP here in Aus? Crikey I know so many ppl that signed with OzEmail after OneTel went belly up. I'm sure they will be impressed!!!!!!!
Fat Red
26 Jun 2002, 18:29
Vor, why the "cool" icon?
Originally posted by Shinboners
Yep, it was Worldcom. Profit misstated by almost 4 billion dollars and it seems that expenses (which affect the profit and loss statement) were booked as capital (which puts it in the balance sheet). The thing is, how could the auditors have missed that?
If so it's unlikeley be so bad as there will be little impact on cash flow (in fact cash will increase as taxable income will diminish), unless they were trading insolvent.
Balance shhet items end up as expenses in the long run through depreciation.
Voice of Reason
26 Jun 2002, 20:10
Originally posted by Fat Red
Vor, why the "cool" icon?
I always use it for every post.
It says: I'm cool under all circumstances, even Suzi and Enron.
Shinboners
26 Jun 2002, 20:13
Originally posted by Frodo
If so it's unlikeley be so bad as there will be little impact on cash flow (in fact cash will increase as taxable income will diminish), unless they were trading insolvent.
They would be trading insolvent if they've used up all their working capital and expenses exceed revenues.
Balance shhet items end up as expenses in the long run through depreciation.
That's true, but companies don't have infinite working capital, so you can't capitalise all expenses in the hope of depreciating it in the long run. So expenses must be matched to the period of time that it is used...eg, salaries are recognised immediately, not sent to the balance sheet for depreciation. Machinery is capitalised and depreciated over the life of the machinery.
It proves that self-regulation does not work.
Voice of Reason
27 Jun 2002, 08:03
Originally posted by Slax
It proves that self-regulation does not work.
Equally arguably, it proves that regulation does not work.
More likely, it proves that WorldComm management and Andersen didn't do the right work.
Shinboners
27 Jun 2002, 09:07
Originally posted by Slax
It proves that self-regulation does not work.
Plenty of people believe that the Australian banks are effectively self-regulated and are yet profitable - does that prove that self-regulation works?
Voice of Reason
27 Jun 2002, 10:21
Originally posted by Danni
Ok I am a real 'non business type' - so forgive my question if it is the obvious....
Is this the company that owns OzEmail and has a $6.6 Billion misreporting problem and is going to shed 17 000 staff?
If so.......can we see the end of another big ISP here in Aus? Crikey I know so many ppl that signed with OzEmail after OneTel went belly up. I'm sure they will be impressed!!!!!!!
Sorry, Danni, missed your questions. The answers are "yes" to all these things. At this stage OzEmail reckon they'll be OK, but it all depends on ongoing financial support & cash flow, so who can say?
Originally posted by shinbonners
Plenty of people believe that the Australian banks are effectively self-regulated and are yet profitable - does that prove that self-regulation works?
Australian banks are heavily regulated as far as reporting goes. The requirements for banks to report to the RBA are incredibly rigerous and time consuming for when they make quarterly reports. Australian banks must also maintai a certain level of liquidity in case of a rush on withdrawls so they can meet it.
Australian banks are only self-regulated as far as customer service and fee setting goes not reporting and setting of cash levels. If you believe that they are totally self-regulated make some enquires through the Reserve Bank on their website.
Originally posted by Voice of Reason
Equally arguably, it proves that regulation does not work.
More likely, it proves that WorldComm management and Andersen didn't do the right work.
Well Arthur Andersen's current worldwide status isn't exactly brillant. The face the potentional of a US$2Billion law suit for the HIH collapse because of allowing to trade whilst insolvent for 4 years. The US arm has the ENRON disaster hanging over it's heads and have been told that they will be sued by the liquidators for consipiring to hide debt.
It seems that Athur Andersen are stuffed. They obviously used the ambigious nature of the US Accounting laws to their benefit and then stretched them to the point of breaking them. AA have lost a number of large clients over the last 12 months and are losing more continually.
Some companies regulated or unregulated will bend the rules, it is a question of both the auditors and their client being willing to do it and I think there is a lot more to come out of the US than this.
Shinboners
28 Jun 2002, 10:01
Originally posted by Slax
Australian banks are heavily regulated as far as reporting goes. The requirements for banks to report to the RBA are incredibly rigerous and time consuming for when they make quarterly reports. Australian banks must also maintai a certain level of liquidity in case of a rush on withdrawls so they can meet it.
Australian banks are only self-regulated as far as customer service and fee setting goes not reporting and setting of cash levels. If you believe that they are totally self-regulated make some enquires through the Reserve Bank on their website.
I know what you've just posted is correct. I was just bemused by your post where you made the sweeping statement that self regualation doesn't work, and here you have given an example of one industry that has regulated and self-regulated aspects to the business.
I have over 20 years of experience in dealing with Arthur Anderson as auditors here in Australia and overseas and these teo instances (Enron and Worldcom) are completeley out of character. I have had countless debates with them over stickling issues and no way would I have got away with anything like what has happened with these two companies.
In essence a team comes out oon an audit and checks everything, they reprt to a supervisor who checks everything. The whole audit then goes to a partner to sign off the accounts, and he is thorough.
Here's a simple argument I lost with them :-
A Company imported goods worth USD500K in May when the A$was worth 50c. So the invoice was entered at A$1M.
On 30 June the A$ was worth 55c so Andersens said there was an extra profit there to be booked. I argued that we could only make a profit or loss once we paid the supplier so an extra profit could not be determined. I lost the argument.
Now my point is that regulation by auditors to the standards is very good 99.9% of the time. Of course there are always going to be the odd bad apple due to humans being involved.
Vindaloo Mat
29 Jun 2002, 20:57
auditors are human ????
when did this start ???
:D :D
dreamkillers
30 Jun 2002, 13:24
and now we have Xerox caught doing the same thing.........:(
Time to bring the corporates of this world back into place before they well and truly destroy our great planet........
greedy profits and back room deals are not what this world is really about if we want it to survive in the medium to long term.....
Lets hope it's not to late to turn things around........
The bigger worry about Xerox coming out and stating that they are incorrectly stated some items in their financial reports is that they are not the only ones.
I have made contact with some friends in the states and they say that at least 50% of the top 100 companies are incorrectly stating revenue or the value of their assets. This sounds very much like another HIH & Enron waiting to happen so the US financial governing bodies must do something quickly are they risk another financial disaster.
ian_rocks
1 Jul 2002, 17:33
dumb capitalism
Originally posted by Slax
The bigger worry about Xerox coming out and stating that they are incorrectly stated some items in their financial reports is that they are not the only ones.
I have made contact with some friends in the states and they say that at least 50% of the top 100 companies are incorrectly stating revenue or the value of their assets. This sounds very much like another HIH & Enron waiting to happen so the US financial governing bodies must do something quickly are they risk another financial disaster.
Sorry old fruit but I have to say with some experience :-
WHAT A LOAD OF BOLLUX
dreamkillers
1 Jul 2002, 23:51
I'm a little out of my league here and I only caught he end of Lateline tonight but they were saying that the so called world's free markets are controlled by less than 100 companies and about 10 accounting firms.
There was also talk about what is happening in the States and to a lesser degree elsewhere in the markets around the world is very similar to what occured just before the great depression.
First time I have heard this mentioned in a while and would like to here others thoughts..........