By the time this column appears in print and on-line a month will have passed. A new crop of scandals will confront a world increasingly inured to the daily shocks that strike on every front, accounting included.
As I write, following concerns raised by a whistleblower, Tesco has owned up to a quarter-billion pound overstatement of profit in its half-year unaudited results, triggering a £3 billion slide in its stock market value. Not a fraud; not an error; just a matter of accounting creativity taken a notch too far. Even the three major rating agencies have put Tesco “on watch” for a credit downgrade as “aggressive” in the face of weakening margins and fierce competition.
As a cynic might ask, why bother to sell food at a profit when you can make it up from supplier “rebates”? Tortuous terms of trade, unilaterally devised and imposed, allow the chain to delay payments to suppliers, deduct huge discounts for meeting their own bulk-buying targets, or to impose “marketing and promotion” charges for displaying suppliers’ products prominently – all finishing up as Tesco’s current revenues.
In the meanwhile the supermarket’s earnings are shown at their inflated amount
Timing is a major issue. Even when beleaguered suppliers are successful in disputing the charges or discounts, months may pass before the accounting is rectified and reimbursement made. In the meanwhile the supermarket’s earnings are shown at their inflated amount. The mismatching of revenues and costs has been at the sharp end of accounting contrivance as far back as I can remember, and the latest revelations are simply a new variation played on a very old fiddle.
My guess is that the search for a comprehensive standard on revenue recognition will always be frustrated by managers who try to get away with choosing “the number they first thought of” when reporting revenue numbers. These contrivances have always breached truth and fairness. Perhaps exemplary penalties imposed on individual culprits would be a more effective reform than yet another standard.
Delinquent banks – again
Banks have not fared well. While Lloyds holds the record for the largest number of customer complaints, Barclays is now officially declared to be Britain’s most-fined financial institution. It has now suffered a £38 million penalty for failings that put billions of pounds of clients’ money at risk, bringing its tally of fines to £134 million in Britain alone. If we include fines in the USA, the total penalties imposed on Barclays since the banking crisis exceeds £1.1 billion – which is £250 million more than last year’s dividend, but £1.3 billion less than staff and management bonuses.
Deutsche Bank bosses have been charged with fraud; the chairman of BNP Paribas has resigned in the wake of $8.9 billion in fines for sanctions-busting; HSBC has been hit with a penalty of $1.9 billion for laundering money for Mexican drug cartels. There’s much more, but that gives the flavour. No wonder regulators fear that this massive drain on resources threatens banks’ ability to meet the latest capital adequacy targets.
How the public understanding of the role of banks has changed. The lads running the banking casino clearly live in a parallel universe. They may have raised rate-fixing, dark-pool trading and other forms of crookery to the level of an art-form, while the public need for a “service” has been abandoned.
I remember being able to deposit a modest sterling cheque in my French bank account and having the money transferred within two days. Not now. No matter how small the transaction, money-laundering regulations (for my protection) generate incomprehensible bureaucratic shuffling at both ends and a two-week delay in transmission.
Even the usually upbeat European Central Bank chief Mario Draghi wears a puzzled look these days, as if it has dawned on him that there may be more to economic management than printing euros. His latest observation, “the economy is losing momentum”, is about as apt as Gladstone’s last words, “I’m feeling better now”.