Allegations of improper accounting are still popping up—and in some unlikely places. The most recent flap stems from Rosie O’Donnell’s fight with the publisher of her discontinued Rosie magazine, Gruner + Jahr USA. The former talk-show host alleged in a lawsuit that the publishing company used improper accounting to keep losses at the magazine from hitting a threshold that would allow her to bow out of the joint venture.
If the magazine lost more than $4.2 million in a fiscal year, O’Donnell could walk away without penalty, according to the complaint filed in a New York State Supreme Court. Lawrence Diamond, CFO of G+J, admitted during testimony in the case to recommending “managing the financials” to avoid hitting that figure, says a report in the New York Times. O’Donnell’s side argued that the magazine should have set up a reserve account for rebates that would be due to advertisers for missing promised circulation targets. Her lawyers also alleged that G+J reported false circulation numbers to the Audit Bureau of Circulations, which audits the readership figures of publications.
But magazine-industry experts say that setting up reserves for advertising rebates isn’t always necessary. “It’s not normal practice in the industry to set up an accrual account for rebates in case circulation numbers don’t live up to expectations,” says P. Andrew Bilbao, general manager of the music and literary group at VNU Business Publications Inc. “Now, if they were reporting false circulation numbers, that’s a different story.” Another magazine-industry expert, who spoke on condition of anonymity, says it is rare for publishers to return cash to advertisers. “They usually make up for shortfalls with ‘make good’ ads or other promotions,” he says.
G+J sued O’Donnell, seeking $100 million for breach of contract after O’Donnell departed the magazine in September 2002 and it was forced to shut down soon after. O’Donnell countersued for $125 million. A judge ruled in November that neither side should be awarded damages. —Joseph McCafferty
Watch out FASB: there’s a new accounting cleanup crew.
In October, Columbia Business School launched the Center for Excellence in Accounting and Security Analysis (CEASA) with seed money from IBM, the GE Foundation, and Morgan Stanley. According to Stephen Penman, professor of accounting at Columbia and co-director of the center (along with Trevor Harris, a managing director at Morgan Stanley), the think tank will bring together academics, finance executives, and others to develop “independent policy research” on some of today’s most pressing accounting issues.
Arthur Levitt, former chairman of the Securities and Exchange Commission, has agreed to chair CEASA’s 15-member advisory board. Among the other members are Philip D. Ameen, comptroller at General Electric; Richard Carroll, assistant corporate controller at IBM; Stephen S. Crawford, CFO of Morgan Stanley; and Sallie Krawcheck, CEO of Smith Barney.
First up will be a project on accounting for pension liabilities and another on the reporting of contingent equity securities. Those topics, explains Ameen, best fit the center’s mission in that they are “solvable, with solutions that don’t automatically leave users, preparers, or regulators in conflicting positions,” and it is early enough in their development that “consensus can make a difference.” The center plans to outline its solutions in white papers scheduled for March.
The hope is that the guidance will be adopted throughout Corporate America without being mired in the “politics” that often accompanies other standard-setting processes, says Penman. In the current setup, adds Ameen, “standard setters have become…very linear, starting with conceptual framework decisions made by different boards, sometimes decades ago. And sometimes those decisions don’t make much sense now.”
Still, how the guidance will be used remains to be seen. For his part, Penman hopes to use a “process of persuasion” to spread the word to corporations, while Ameen just hopes to “advance the dialogue.” —Lori Calabro
CFOs on the Move
E-Trade Financial Corp. announced that CFO Leonard C. Purkis would retire at year’s end. The brokerage firm named Robert J. Simmons, VP, finance, to succeed him…. Former AT&T vice chairman Charles H. Noski was named CFO of Northrop Grumman, replacing Richard B. Waugh Jr., who retired from the Los Angeles—based defense contractor…. Schering-Plough Corp. replaced Jack Wyszomierski, who had served as CFO of the drug company since 1996. Robert Bertolini, who led the pharmaceutical group at PricewaterhouseCoopers, succeeds him….