Home Tomorrow's Business The pointlessness of the accounting tactic

The pointlessness of the accounting tactic

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A favourite tactic when trying to downplay profit warnings or other financial nasties is this: to paint the bad news as a mere “accounting matter” – it’s just those nerdy number crunch guys, creating trouble for no good reason.

You know what they’re like.

I don’t know if this tactic, which seems to be in increasingly common use, is favoured by executives or pushed by flaks, or both. I do know this: it doesn’t work at all.

Thomas Cook gave it a whirl today, as it unveiled a second profit warning in three months. These accounting tweaks – no big deal! – will knock another £30 million from profits.

They also knocked 30% off the share price in early trading, so it’s very hard to see that there’s any point in pretending the accounting issues somehow aren’t real. The City thinks they are. In fairness, the Thomas Cook flaks made the best of a bad situation. They brief well.

In general, saying your own accounts don’t really mean that much comes off strangely, even if the intent is benign.

CEOs in particular want it every which way. Accounting upgrades are entirely meaningful. A sign of their brilliance. Accounting downgrades don’t matter.

We aren’t going to buy that I’m afraid.

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