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January 14, 2013

Costs of hiding the numbers – what price would you pay?

In a recent interview with CIMA’s Financial Management magazine with ex-Olympus chief executive and whistleblower Michael Woodford, he muses that it is in the area of preparing data that he believes management accountants may have the most impact: "The key thing is that data needs to be legitimate and accurate because only then can an external audit be robust. For capitalism to work, for capital markets to work, you really do want to believe a company’s accounts are what you say they are."

Whilst taking calls on the CIMA ethics helpline this is an area where our members are most often pressured. Misleading reporting is contrary often to the law and always to the fundamental principle of Integrity of the IFAC Code – to be straightforward and honest. More specifically it undermines the principle related to the preparation and reporting of information in "a manner that: describes clearly the true nature of business transactions, assets, or liabilities" (section 320). A new CGMA produced animation highlights these points.

My in-flight viewing this festive season on my return from Asia included Arbitrage, another example of Hollywood cashing in on fables reflecting the excesses and failures of business dealings. In the movie Richard Gere plays a multi billionaire owner of a hedge fund, about to sell for a great profit to a major financial institution. However, he has cooked the books in order to cover an investment loss as well as to avoid being arrested for fraud. Those amongst his staff who don’t know that the finance guys and the auditors have been paid off to "mislead others", include his daughter, his chief information officer, who stands to not only lose her job but any hope of getting another. A point she raises when confronting her father. The movie’s ending is worth seeing. There is no ending. No doubt shortly in production will be the Woodford story, as follow up to his recently released expose book.

Movie over, I flick through my Bangkok Post and learn the US Department of Justice have now begun investigations into Hewlett Packard (HP). I know that HP are already cooperating with the US Securities and Exchange Commission and the UK’s Serious Fraud Office. The Autonomy acquisition is under the spotlight. The legal quagmire HP currently faces includes numerous class-action law suits from shareholders, including "allegations that HP issued false and misleading statements on its financial performance and prospects since August 2011, when the Autonomy deal was first announced, and on November 20 2012, when it reported the write-down". The coming months (years?) will show how the story unravels.

Maybe something worth a prime-time TV show I wonder? Or perhaps the defence is as sound as HP state. Autonomy was the tech world’s darling – so what went so sour? With up to 15 accounting, legal and financial advisory firms involved (and handsomely paid) in the acquisition, something somewhere seems awry, and fingers are pointing in all directions.

The impact on brand and share prices, losses of nearly 50% during 2012, means chief executive Meg Whitman, (the third head in post since 2010) has a great opportunity to be able to evidence leadership in turning around several years of – well, interesting management. The case, however it turns out, underlines the importance of abiding by ethical codes, transparency and overall integrity in both recording and auditing the numbers. If these stack up all will be OK. Here’s to a transparent 2013.

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