http://www.theglobeandmail.com/globe-investor/auditors-were-well-aware-of-nortel-reserves-accountant-testifies/article2331188/

Wednesday, Feb. 08, 2012

Auditors at Deloitte & Touche had a detailed knowledge of the items that comprised Nortel Network Corp.’s controversial accounting reserves in 2003, a former Nortel accounting employee testified Wednesday.

The Crown has previously contended that Deloitte’s knowledge of the accounting moves does not absolve the executives from their responsibility to act appropriately, but the auditor’s role remains a key area of focus at the trial.
(again, heard it here first=)

(witness) previously testified that the meeting became uncomfortable as the auditors got increasingly aggressive in their questioning about the purpose of the reserves, whether there were appropriate business “triggers” to justify unwinding the reserves, and why Nortel was proposing to only unwind $80-million of them and not the additional $109-million that had been identified. (take note of this one, as this is the exact amount that was required to trigger bonuses!)

the trouble is they are painted as not knowing….

even though they approved and accepted the non traditional immedioate cash bonuses than traditional options only to later deny theses obvious red flags …after so many evangelicalized  bored meetings that they did not know albeit holding close relationships with Dunng, before they timely resigned after plea bargained… a dream team… as untouchable as an ex-attorney general if he were even remotely charged with murder or a PM charged with fraud….

Tuesday, Feb. 07, 2012

Former Nortel accountant recalls concerns over volume of reserves

Former Nortel Networks Corp. accountant Susan Shaw grew increasingly frustrated with the volume of unsupported accounting reserves being held on the company’s books in 2003, and decided the issue needed to be addressed by senior executives.

In testimony Tuesday at the Toronto fraud trial of three former Nortel executives, Ms. Shaw recalled her mounting worries about the treatment of the company’s reserves, and testified the issue blew up at a heated meeting in April, 2003, when the company’s external auditors asked for documentation and backup to support the reserves.

“I think the atmosphere was quite tense, because it was apparent we did not have what they where requesting, so that made it confrontational.”

By late March, she was told the company planned to unwind $80-million of the $189-million of unsupported reserves she had identified, recording the amount as income for the quarter. Controversially, the release of the reserves would trigger an internal “pro forma” profit for the quarter, triggering the payout of large bonuses to executives.

That decision led to a meeting at Nortel’s offices with auditors from Deloitte & Touche in mid-April to discuss the reserves.

She said the auditors were unhappy that Nortel could not identify any business “trigger” to justify releasing the reserves in the first quarter. They also questioned why just $80-million from a list of $189-million of unsupported reserves were being released if they were all “releasable” amounts.

As the meeting deteriorated, most of the staff was asked to leave, including herself, she said.

In late 2003, Nortel announced a sweeping restatement of its books, including restating almost $1-billion of accounting reserves i

Feb. 06, 2012

The Crown, however, showed Mr. Harrison a document from Nortel’s board of directors in April, 2003, approving the payout of bonuses in the first quarter of 2003. It showed the board used an internal “pro forma” calculation of a $40-million (U.S.) profit in the quarter as its basis for approving a bonus payout.

In that quarter, Nortel had recorded $80-million of gains from the use of controversial non-operating accounting reserves to achieve profitability.

Under questioning, Mr. Harrison agreed the $80-million of reserves pushed the company into a pro forma profit of $40-million for the first quarter, which was used to approve the bonus payout.

The auditors used an old calculation of “pro forma” profit that was in place in 2002, but discontinued in 2003, arguing the 2002 numbers should have been the basis for the bonus payout.

However, the board document introduced Monday said that because the company had changed the way it calculated internal “pro forma” profit between 2002 and 2003, the board declared it would have the final say about whether the profitability trigger had been met for the purposes of the bonus program.

The defence said last week the auditor’s calculation shows there was no motive to manipulate Nortel’s books in the first quarter of 2003. But Mr. Hubbard’s questioning on Monday suggested the Deloitte & Touche calculation prepared later in the year was different from the numbers used internally within Nortel and by the board of directors at the time the bonus plan was being approved.

Mr. Hubbard also asked Mr. Harrison about his earlier in which he said he believed all accounting reserves being used at the company had proper triggers and were documented properly.

The Crown noted Nortel announced a huge restatement at the end of 2003 that included $1-billion of improperly booked reserves. In the restatement, Nortel acknowledged the reserves had previously been booked without adequate support or documentation.

“The document admits that while you were there, accruals approaching $1-billion had to be reversed because there was no support, no foundation,” Mr. Hubbard said.

http://www.theglobeandmail.com/report-on-business/nortel-exec-testifies-reserve-use-fully-aired-with-auditors/article2325753/

The defence claims the use of reserves was not fraudulent in part because it was fully disclosed to the company’s auditors at the time, and such transparency is at odds with an attempt to commit a fraud.

(Mr. Harrison) agreed that the auditors knew the provisions were lacking in supporting documentation to justify a business trigger in the first quarter of 2003.

The auditors ultimately approved the use of the $80-million in reserves for the quarter, he confirmed. The amount was also mentioned in Nortel’s press release announcing its first quarter financial results, he added.

Mr. Harrison’s cross-examination by defence lawyers is expected to conclude Monday. Ms. Shaw is expected to be the next witness at the trial.

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The auditors argued with Nortel at the time only to later resign.

The accused knew the numbers were cooked, yet still wrestling with the auditors to get them signed off. The auditors were initially reluctant to sign off on them.

Just because they ultimately did sign off on them does not exonerate the accused who provided them. The crown in its opening statements explicitly stated that any other complicity does not  exonerate the accused. It wasn’t the coerced auditors who provided the numbers.

As for “fully aired” numbers, more like bad gas.

They hid behind secrecy.  Some Nortel managers were not allowed behind closed doors with the auditors at the time as earlier testimony revealed. Now they hide behind the coerced auditors.

Thursday, Feb. 02, 2012 2:06PM
Last updated Thursday, Feb. 02, 2012 4:51PM

Mr. Porter suggested it was possible that accounting staff around the world were already preparing legitimate new reserves to be booked when they received a phone call from Mr. Harrison asking them about finding new provisions.

In cross-examination of Mr. Harrison, Mr. Porter asked whether he knew whether the reserves reported to him were new ones being created on the spot, or were ones already in the works.

“The speed which I got the response told me these were in progress,” Mr. Harrison said.

Mr. Porter then suggested it was possible the entries may have been made anyway, even if Mr. Harrison hadn’t called various divisions requesting them.

“I don’t know if these entries would have been made or not,” Mr. Harrison replied.

The questions focused on a controversial period in early January, 2003, when Nortel finance staff discovered the company had unexpectedly earned an internal pro forma profit of $73-million (U.S.) in the fourth quarter of 2002, six months ahead of its public forecasts.

Mr. Harrison testified earlier in the trial that he was asked to phone various business units to find new accounting accruals that could be booked as provisions, reducing the profit to a loss for that period and keeping earnings in line with forecasts.

He testified he had never previously been asked to do something like that, but within a day had verbal promises of $176-million of new reserves that could be booked by units around the world.

The Crown has alleged the accused did not want to book a profit in the fourth quarter of 2002 because they felt it would be a “blip” and they could not report another profit in the first quarter of 2003. Their bonus was scheduled to rise only if they could sustain two successive quarters of profitability.

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(The defense appears desperate without a leg to stand on.  It looks like a slam dunk for the crown to me. The defense even resorts to Dunn being out of town Dec. 20, 2002, to Jan. 11… So what…like this telecommunications company was blinded to using a simple telephone or fax machine while he was away in Asia and whatever this has to do with the weather… how lame an argument is that )

Jan. 30, 2012 6:31PM

Nortel accounting worker testifies about ‘road maps’ to profit

Frank Dunn felt it would be “awkward” if the telecom giant recorded an internal profit that triggered executive bonuses while it publicly reported losses based on different accounting rules.

“I would say that sort of optically having a public loss and at the same time paying bonuses would be optically odd. … Awkward optics was how I understood it.”

Mr. Harrison also testified Monday that he wrote an e-mail in 2001 in which he explained that a new expense facing the company could be “offset” by recording a similar amount as income from accounting reserves. In the e-mail, he referred to the reserves as “Doug’s cookie jar.”

Mr. Harrison was the first witness to testify at the fraud trial of Mr. Dunn, former chief financial officer Douglas Beatty, and former controller Michael Gollogly.