When Holy Ledgers Lie

No more easy money for corporate criminals. Just a hard time--President

George W Bush vowed as he proposed a Corporate Reform Bill in a White House East

Room ceremony. This bill was empowered to increase penalties for accounting

fraud and provide new ground for prosecuting corporate corruption. Corporate

misconduct had brought in its wake, weak stock markets, and approaching

Congressional elections. With corporate integrity at an all time low, this law

was necessary to get the moguls of corporate America to pull up their socks!

The recent onslaught of corporate scandals has rocked the financial markets

and shaken investor confidence. The scandals have included Enron, WorldCom,

Tyco, ImClone, Adelphia, and Kmart. Firms like WorldCom compounded the problem

by attempting to hide their warts through accounting fraud –a tactic which

recently acquired notoriety thanks to that other failed giant, Enron. And the

example of Xerox only paved the path for media giant AOL Time Warner, which

resorted to unconventional advertising deals to inflate its income.

Counterfeit Coterie
	Enron–juggled accounts to appear profitable
	WorldCom–profit and loss statements converted to capital expenditure
	Xerox–bribed officials to get work done
	AOL Time Warner–sold ads on behalf of online auction giant eBay Inc
	Tata Finance- A F Ferguson–withdrew financial report prepared by Y M Kale

The defaulters



Enron was the first of the recent business scandals that have devastated

investor faith, contributed to a multi-trillion-dollar market downturn, and made

corporate reform a political imperative. Records show that the numbers were

shams and the portrait was a fake. Enron’s profits were a mirage. The company

was making little profit, if any.

The next in line, WorldCom revealed that it had swept $3.8 billion in

ordinary expenses off its profit-and-loss statement by counting them as capital

expenditures, which are deducted from revenue over a longer period, not

immediately. The company had previously reported profits of $1.5 billion for

2001 and $130 million for this year’s first quarter. The restatement of

earnings submitted by the company is expected to be the largest in business

history, and it appeared likely to wipe out all of WorldCom’s profits from the

beginning of 2001.

The latest in the list



The latest entrant to this elite club is media mammoth AOL Time Warner. The

Securities and Exchange Commission (SEC) has been probing the transactions of

AOL Time Warner after a Washington Post report claimed that the America Online

unit boosted online advertising revenue through ‘unconventional deals’ from

the year 2000 to 2002.

With its takeover of Time Warner imminent, AOL sought to maintain its

breakneck growth in advertising and commerce revenue. AOL converted legal

disputes into ad deals. It negotiated a shift in revenue from one division to

another, bolstering its online business. It sold ads on behalf of online auction

giant eBay Inc, booking the sale of eBay’s ads as AOL’s own revenue. AOL

counted stock rights as ad and commerce revenue in a deal with a Las Vegas firm

called PurchasePro.com Inc. Without the unconventional deals, AOL would have

fallen short of analysts’ estimates of the company’s growth in ad revenue in

three-quarters in 2000 and 2001.

Homegrown untruth



On our shores the recent Tata Finance- A F Ferguson case stinks. The

withdrawal of the report on Tata Fin’s (TFL) accounts by A F Ferguson was a

case of professional misconduct. The report compiled by Y M Kale apparently had

critical observations about the functioning of TFL and comments about poor

corporate governance practices in the company. The report also unearthed

questionable inter-group transactions by several Tata group companies. The

Americans have now passed a law, and the nation seems to be making the

much-needed repairs. This is a reminder to our corporate executives to abstain

from defrauding investors and employees for personal gain.

Dhanya Krishnakumar In New Delhi