‘Rapid downsizing may be overeaction’

New York, Oct 31: Investors could be forgiven if they were surprised when consulting firm Accenture Ltd. recently said it would take a $40 million quarterly charge for the Sept 11 attacks.

After all, accounting rule-makers in a much-publicised decision in late September had said firms must include costs related to the attacks, as part of their continuing operations and not present them as extraordinary, one-time charges.

But Accenture was just one of many US companies that have rushed to quantify losses from the Sept 11 attacks, gently guiding investors away from its bottomline numbers.

The accounting body opposed creating special charges because it’s tough to isolate losses from a single event, or series of events, like the attacks that flattened the World Trade Center.

Companies are complying, but they are still underscoring how the attacks hurt business, and, in many cases, imploring investors to ignore the bottomline figure that fails to set aside the attack-related losses.

In the case of Accenture, the consulting firm neatly sidestepped the issue by avoiding the term “extraordinary” losses, which the accountants had explicitly disallowed. Instead, they referred to the “unusual” losses brought on by the attack, even though these costs are included in the firm’s continuing operations under accounting rules.

But whether they are called unusual or extraordinary, the effect is the same: Individual investors and Wall Street pros alike typically ignore these unusual charges when evaluating a firm’s core performance.

Other examples abound. The Bank of New York Co. Inc., for example, emphasised earnings per share figures that excluded the costs of the disaster in its earnings press release. Several others, especially lesser-known companies, are issuing press releases with estimates of revenues they had never even booked, blaming the attacks.

The big unanswered question is how much were profits hurt by the attacks and how much by the general economic downturn — a concern that the Financial Accounting Standards Board had voiced in deciding against extraordinary treatment.

Analysts say that at the very least, it is hard to distinguish between costs stemming from the attacks and those coming from the downturn. At worst, firms could be putting in all sorts of expenses unrelated to the attacks into a charge and pass it off as a one-time item.

“There’s certainly a tendency for firms to sweep all sorts of other problems into it and blame it on (the attacks),” says Mr David Levy, chairman of the Jerome Levy Forecasting Center, an economic and financial research institute.

Businesses that are underperforming now have a handy excuse, he said.

“It’s certainly more appealing to tell your shareholders it’s because of something that was done to us and portray yourself as a victim of terrorism rather than as a victim of a downturn that maybe you didn’t plan for very well,” Mr Levy said.

An Accenture spokeswoman said the firm did not include in any costs in the charge unless it had a direct link to the Sept 11 attacks, such as additional travel expenses and its donation to the Red
Cross.

— Reuters