Nortel's numbers nightmare

NORTEL'S NUMBERS NIGHTMARE

Nortel Networks announced this month it would restate its financial reports for the fourth time in as many years. Though management has changed hands, independent investigations have been conducted and new internal control procedures have been instituted. The company admits its accounting problems aren't over yet.
— Ed Gubbins

WEAKNESSES

In its 2005 annual report, Nortel identified five material weaknesses in its accounting controls. This month the company said it “expects to eliminate the majority of these” but admitted that revenue recognition in particular remained a material weakness.

1. Poor compliance to company procedures for adjusting balances due to contract accruals and restructuring charges.
2. Poor compliance to procedures for recording liabilities, including accounting for contingencies and translating foreign currency.
3. Lack of experience with U.S. generally accepted accounting principles.
4. Poor supervision of accounting and poor integration of accounting systems,
5. Poor awareness of and response to internal control problems.

TIMELINE

October 2001
CFO Frank Dunn named CEO

October 2003
First restatement

April 2004
Dunn fired, replaced by William Owens

March 2004
Second restatement CFO Doug Beatty replaced with William Kerr

February 2005
Former CFO Peter Currie becomes CFO

November 2005
Mike Zafirovski becomes CEO

March 2006
Third restatement

May 2006
Nortel admits “material [accounting] weaknesses remain unremedied”

February
CFO Peter Currie resigns

March
Fourth restatement