Wilder Coe Ltd is pleased to announce that we have been shortlisted by Finance Monthly Global Awards 2014 as “Forensic Accountant Firm of the Year – UK”, with the winner to be announced in February.
In the final quarter of 2013, 103,000 subscribers of Finance monthly were asked to cast their vote on their Forensic Accounting Firm of the Year, and the firm is delighted to be acknowledged for our work in this field.
Forensic Accounting Partner, Bee Lean Chew, discusses the complexities of Forensic Accounting and how recent public abuses of accounting standards have driven an increase in awareness of the importance of a skilled forensic accountant.
“Accounting, in itself, is a flexible tool – necessarily so, as it is the substance of a transaction which should be reflected in a company’s accounts, rather than its form.” Bee adds, “In its pure application, accounting rules will assist the reader of a company’s financial statements to understand the important elements of its performance. When abused, accounting can be used as a tool to manipulate the market.”
There is, however, a fine line to cross between the two.
Bee continues, “2013 saw the ongoing case of HP and Autonomy, where HP alleges that Autonomy overstated its revenue levels and margins by a simple re-categorisation of sales from software to hardware sales, resulting in the recognition of 100% of the revenues arising on those sales at the initial point of sale, rather than being deferred over the life of the licenses granted, as is common practice, with the effect of inflating reported revenues and margins in the period.”
Bee is keen to stress that without more detailed information on the case, proper commentary is limited, however if true, Autonomy might argue that it followed best practice in its actions, despite industry standard, on the basis that it recognised revenues in the periods in which the benefits of those revenues accrued.
“The accounting concept here is that of ‘matching’ – where an income arising from a spend occurs over a number of years, it is standard practice to capitalise that spend, releasing it to the income-expenditure account over the period in which the associated income arises; conversely, where the benefit of a revenue stream arises over a period of time, then it is conventional to recognise that revenue over the period which benefits.” She adds, “Taking abuse of this concept to the extreme, one only needs to look at the fraud perpetrated in WorldCom which built on this concept, where the company reported spend on leasing other telecommunications companies’ phone lines as additions to plant, property and equipment, then depreciated this spend over extended periods. This, and other creative accounting measures, resulted in overstated profits and assets reported by WorldCom, misleading the market as to the company’s financial performance.”
Bee closes with, “It will be interesting to see what further creative interpretations of accounting principles come to light as the HP-Autonomy saga continues, but importantly this case has been an example of how forensic accountancy continues to be at the forefront of legal disputes surrounding market manipulation. As we enter 2014, the forensic accounting profession can be sure to see more action as due diligence is conducted on transactions and disposals, and are carefully scrutinised to ensure potential cases of accounting fraud are identified at the earliest stage.”
If our Forensic Accounting team can assist you or your business in 2014, why not get in touch with us on email@example.com, or call direct on 020 7724 6060.