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Nortel continues its meltdown

Nortel CEO Frank Dunn (and two others) have been fired for playing games with the company's accounting. Now this may be something others would not want to admit on the internet, but I have something of a fascination with accounting. As I understand it, what they did was move some of the expenses they knew they would incur in 2003 to the financial statements for 2002. This was the year that they 'came clean' and wrote off all the bad investments the company had made earlier and made the balance sheet come closer to resembling the true position of the company. When you're confessing to all these mistakes, who's going to notice a few extra hundred million dollars? And if this allows the company to to post a nice profit in the next year -- where's the harm?

Well, technically the books haven't been too badly abused. This is not an Enron where liabilities were hidden. Enron was a gambling addict using embezzled money -- hiding his loses from his employer and waiting for the big score to bring him back above water. This is more in the vein of a politician pushing the responsibility for problems on his predecessor and taking the credit for things he had nothing to do with.

But it's still bad. Especially when you consider than Dunn got a nice bonus for arranging that bogus profit. That might be enough to put him in jail. But more importantly, it's given a false impression of how the company is doing. This has lured investors to throw good money after bad -- quite a serious crime. I'm interested in how this will play out.


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