Home' A Plus Magazine : March 2014 Contents NEWS
Material restatements affect
companies’ credibility – paper
Material restatements of earnings that involve
correcting accounting irregularities, lead to a
loss in company credibility with a decline in a
measure of investors’ response to earnings re-
ports lasting an average of nearly three years,
which is substantially longer than previously
documented, according to a research paper re-
leased last month. The study, by Xia Chen and
Qiang Cheng of Singapore Management Uni-
versity and Alvis K. Lo of Boston College, was
published in The Accounting Review.
IASB makes costs pledge
on lease accounting rules
International Accounting Standards Board Chair-
man Hans Hoogervorst said the costs of the con-
verged lease accounting standards, developed
with the Financial Accounting Standards Board
in the United States, would be kept to a mini-
mum. Bloomberg reported that Hoogervorst
told the Accounting Standards Board of Japan
last month that decisions had already been
made to reduce costs by excluding short-term
leases and most variable lease payments.
FAF contributes funds
to convergence projects
The Financial Accounting Foundation, which
oversees the Financial Accounting Standards
Board in the United States, announced last
month that it would contribute up to US$3 mil-
lion to the International Financial Reporting
Standards Foundation to help complete some
of their joint accounting standards convergence
projects, Accounting Today reported. The joint
projects involve accounting for revenue recogni-
tion, leasing, financial instruments and insurance.
Accountant glut prompts
skilled-migrant list rethink
Australia has too many unemployable ac-
counting graduates and the profession should
be struck off Australia’s priority list for skilled
migrants, the Department of Employment an-
nounced last month. “ Vacancy levels are now
at their lowest since the [job index] began in
2006 and there is no sign of an upturn,” the
department wrote in a submission to the gov-
ernment, The Australian reported.
SEC questions write-downs
on Exxon Mobil’s books
Competitors revalue shale gas properties
After several energy companies reduced the values of their natural-gas properties
in the United States over the past three years, the Securities and Exchange Com-
mission has asked Exxon Mobil Corporation why it has taken no write-downs on
its holdings despite a decline in prices.
The shale boom has caused an oversupply of gas in the U.S., pushing prices
dow n to about US$2 per million British thermal units, compared with US$5 in
June 2010 when Ex xon Mobil bought XTO Energy for US$25 billion.
The SEC, in its request for information, noted that Chief Executive Rex Til-
lerson said in 2012 that Exxon Mobil was making “no money” on shale gas. The
regulator asked whether the company had tested the value of its shale reser ves
and why it had taken no write-downs.
Exxon Mobil responded that it expected commodity prices to recover this
year, telling the SEC it did not test the value of its shale holdings in 2012 because
low prices made such an exercise unwarranted.
Under U.S. Generally Accepted Accounting Principles, Exxon Mobil does not
have to discount future cash flows when estimating its gas assets’ current value,
The Wall Street Journal noted. As long as the assets’ gross expected cash returns
exceed their current value, no w rite-dow n is required.
Oppenheimer & Co. A nalyst Fadel Gheit speculated that Tillerson is reluctant
to acknowledge that a write-down might be necessary, even though it could
reduce income taxes and make the company look more profitable. “[Tillerson]
doesn’t want to take the write-off on his watch,” Gheit told the Journal, adding
that Exxon Mobil has long resisted writing down the value of its assets.
BHP Billiton took a US$2.84 billion w rite-down on some of its U.S. shale-gas
properties in 2012.
HP says it found “major errors”
in Autonomy financial statements
Hewlett-Packard Co. announced last month that it had found major accounting er-
rors in an audit of the 2010 financial statements of Autonomy, the British software
maker the company bought for US$11 billion in October 2011.
The HP audit of the two largest Autonomy entities in the United Kingdom, con-
ducted by EY, found that Autonomy significantly inflated revenue for Autonomy
Systems in 2010 by booking deals that were unlikely to be paid for, booking deals
prematurely before they were closed, and claiming transactions where there were
no end customers.
As part of filing the British company ’s 2011 statements, HP said it had to refile
the statements for 2010 with significant reductions in revenue and profit. The
restatement lowered the 2010 revenue of Autonomy Systems, by 54 percent, or
£95 million, according to a filing with Companies House.
A spokesman for Autonomy ’s former management told the media that the re-
statements were trivial, “given the size of HP’s write-down,” and noted that many of
the adjustments were related to transfer pricing in a bid to lower company ’s tax bill.
8 March 2014
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