you're right, tribune isn't selling any stock...they've just read
this:
Friday July 17 8:12 AM ET
Accounting ills take center stage
By CNBC's Ward Lassoe
Investors' eyes may glaze over when stock-market talk turns to accounting -- but their eyes will certainly open wide
when accounting problems start affecting a company's bottom line, CNBC's Ward Lassoe reports. Two recent
high-profile cases of possible fraud, at Cendant Corp. and Sunbeam Corp., have drawn renewed attention to the
dangers of questionable accounting practices. Experts say conditions are ripe for more bookkeeping shocks down the
road.
Other companies that have admitted recent accounting troubles include Waste Management, Informix and the former
Green Tree Financial.
"As long as these rules can be stretched a little, bent a little, of course managers will try to do it," said Professor Baruch
Lev of the NYU Stern School of Business.
On Tuesday, Cendant's problems deepened with the announcement that one of the companies that merged to create
the franchising business falsified records for three years and created "fictitious revenues."
Cendant, which owns Avis car rental and Century 21 real estate, said the latest problems would decrease its 1997
earnings by $200 million to $250 million. Cendant said it will also have to revise earnings for 1995, 1996 and 1998.
Cendant's stock, which was pummeled in April when the company first announced the accounting irregularities, fell
another 17 percent Tuesday on the New York Stock Exchange. It was the exchange's most active issue of the day with
a massive 60 million shares changing hands. (On Wednesday the stock was unchanged.)
"People are getting panicked and heading for the hills," said Karen Ficker, an analyst at ING Baring Furman Selz.
"They're very scared by the words 'accounting irregularities.' "
One expert says that where there is accounting smoke, investors should watch for the fire. Beware "when you see an
announcement of a 'small problem' in the accounting. There are no small problems in accounting. They are all large
problems," said Howard Schilit of the Center for Financial Research and Analysis.
Sunbeam's problems were not as troubling as Cendant's. But earlier this week a spokeswoman for the small appliance
maker confirmed that the Securities and Exchange Commission was looking at the company's 1997 financial
statements.
Sunbeam has commissioned an independent audit of the statements and said its 1997 results should not be relied on.
Former CEO Al Dunlap, a turnaround specialist, and a longtime Dunlap associate, Chief Financial Officer Russell
Kersh, were dismissed last month as a result of earnings shortfalls and questions about the company's bookkeeping.
The allegations include charges that Sunbeam's managers secretly encouraged speeded-up purchases by big
customers to lift 1997 results. Sunbeam's high-flying stock has come down 80 percent in recent months as a result of
the controversy.
INCREASING PRESSURE
Experts say several factors are to blame for the recent spate of accounting problems at Sunbeam, Cendant and others.
Business deals are more complicated, plus the booming stock market and the popularity of stock options have put
company executives under increasing pressure to perform.
"There's a tremendous amount of attention paid to the bottom line so you don't disappoint Wall Street. That [approach]
is going to affect your pocketbook. I'd say you've got pretty good conditions for pushing the limits," said Jack Ciesielski
of The Analyst's Accounting Observer newsletter.
Some critics also blame Wall Street analysts for looking the other way when accountants try to raise red flags about a
company's books. "If you are beginning to see a problem and you are standing up in the crowd and saying, 'Stop. The
party is over. The wheels are coming off,' you're ostracized," said Howard Schilit of the Center for Financial Research
and Analysis.
Observers say there may be a silver lining to the clouds surrounding Cendant and Sunbeam. "I think the fallout from
these two issues is that auditors will be called upon to contest management's judgement in more cases," said Ciesielski.
It's not just up to the auditors to pay closer attention. Shareholders must also scrutinize companies' returns. "You don't
have to be a Ph.D in accounting in order to ask intelligent questions when you start to see a company's operating cash
flow deteriorate," said Schilit.
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