Yet Another Financial Restatement

Is anyone surprised by the fact Nortel is doing yet another review of its financial statements? This time, it’s focused on contracts signed last year. And although the company insists it isn’t material, the perception that Nortel is still trying to resolve its accounting scandal is troubling. At some point, Nortel needs to have a clean slate so it can move forward strategically. While investors should give Nortel and CEO Mike Zafirovski the benefit of the doubt, it is difficult to instill confidence when the past continues to haunt you. It is also important to keep in mind that even if Nortel resolves its accounting demons, the future is challenging. This is a company that must reduce costs and focus on markets where it can succeed – a challenge in a volatile and competitive industry in wich the economics are dramatically changing. This year looks to be one dominated by rebuilding a solid corporate foundation. Only when this process is completed can the company really focus on driving growth again.
Update: One question I would like explained is how Nortel can take a $2.47-billion charge in the fourth-quarter to account for a class-action lawsuit settlement that hasn’t been finalized yet and wasn’t worked out until early-February. Shouldn’t Nortel wait to do it in the first-quarter of 2006 or when the settlement is finalized?

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2 Responses to “Yet Another Financial Restatement”

  1. Kevin Says:

    The moment a litigation matter (or any contigency) is considered probable, whether it is finalized or not, GAAP (Generally Accepted Accounting Principles) requires the firm to estimate the contingency and charge (reflect) it to their statements. Any subsequent adjustments will be reflected in the future statements as just that, an adjustment. If their ending period has not been finalized, any new anouncements or adjustments after the ending period date must be restated in the financials of that period that has yet been published. In Nortel’s case, I understand they did not give any official audited financial statements yet for ’05 (based on the schedule 14a I just read), therefore, this is the reason for the adjustment in ’05. I hope this helps. Kind Regards.

  2. nortel Says:

    kevin,
    thanks for the info – i appreciate it!

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