Accounting Trouble Spreads to Europe, Keeps U.S. Accent
When a rapid succession of accounting scandals shook the U.S. stock markets last year, some in Europe wondered whether a stricter financial system with better accounting rules had prevented similar problems from spreading across the Atlantic.
But in recent months, a growing list of European companies have found themselves entangled in accounting troubles. Many of the problems, however, have involved the companies’ U.S. units.
Dutch retailer Ahold, for example, uncovered an $856-million accounting hole at its U.S. food service unit earlier this year. Last week, the company disclosed an additional $84 million in accounting irregularities.
In March, British construction equipment rental firm Ashtead Group disclosed accounting errors at its U.S. Sunbelt Rentals business and said past profits had been inflated by about $19.4 million.
And French engineering company Alstom became the latest to join the list, recently disclosing that it would take a $58.7-million charge after understating losses on a rail car contract at its U.S. transport arm.
Accounting experts say the reason much of the accounting trouble has cropped up in the U.S. isn’t because Europe has fewer problems lurking in its books or businesses. Rather, analysts say the intense scrutiny on accounting issues and corporate governance in the U.S. after a spate of scandals last year prompted auditors and companies to pore over their books with a magnifying glass and bring many of the problems to light.
“If you don’t look for something, you’re not going to find it,” said Jim Leisenring, a member of the International Accounting Standards Board, which is developing global accounting rules.
Leisenring says it is hard to compare corporate financial statements in the U.S. with those in Europe because of the varying standards, but he points to the intense scrutiny of books in the U.S. by agencies such as the Securities and Exchange Commission.
The post-Enron environment has further tightened oversight and resulted in tougher rules in the U.S., which have provided additional layers of checks and controls.
Though practice varies from country to country, companies in Europe are not often subject to multiple regulatory bodies or to comprehensive legislation similar to the sweeping corporate reform law -- the Sarbanes-Oxley Act -- passed last year in the U.S.
“There isn’t anything yet compelling companies to do this in Europe, other than their conscience,” said Howard Silverstone, a forensic accountant at Kroll Inc., who worked at an accounting firm in Britain before moving to the U.S.
The mood hanging over corporate America also has encouraged whistle-blowers to speak up. The Sarbanes-Oxley law directs the Labor Department to provide greater protection for whistle-blowers.
Alstom, for example, discovered the irregularities related to a contract for rail cars after employees at its Hornell, N.Y., unit wrote to the company alleging accounting improprieties.
“The chances are extremely remote that the accounting problems that are being uncovered are really more intent in U.S. companies than they are in their European counterparts,” said Frank Goldstein, a securities lawyer with Sidley Austin Brown & Wood. The U.S. “is just where they are looking.”
