| Heiner Kamps | ||||||
The US is in a flap about the transparency of company accounts. Maybe it should look at Germany, where far bigger liberties are taken with figures. CEOs of German corporates sometimes proudly draw analysts’ attention to their methods of bumping up numbers.
Heiner Kamps, the CEO of Germany’s biggest bakery, Kamps, announced 2001 earnings in a conference call to analysts and explained that Ebitda was only slightly higher than the 2000 figures but this rise was deceptively small. The 2000 figures had already been bumped up by e20 million because of “provision movements”.
Says one analyst: “A lot of German companies alter their accounts through provision movements. But few CEOs actually draw attention to it – it’s usually something they keep quiet. I think management was trying to be helpful. What it actually shows is that management doesn’t have a clue.” The analyst says Kamps has been “an issue” for a while but that the gaffe did not negatively affect its share or bond price. Kamps says provision movements are an accepted part of German accounting procedures.
Provision movements are a familiar device in Germany. They allow companies to strike off assets for tax relief and are also used to smooth accounts slightly one way or the other, if at the cost of account transparency.
The days of German accounting procedures are numbered, driven by the indignation of international investors at the uncertainty of company figures.
There have been other, more extreme examples of the gap between the standards used by Germany and other countries, the most famous of which was when Daimler Benz applied both German and US accounting standards in 1993 in order to get NYSE listing approval. According to German accounting, its annual figures showed a healthy profit; US standards showed a sizeable loss.
A UK accountant says: “The problem is that German accounting, like Swiss accounting, was driven by tax compliance. These provision movements make sense for tax reasons but they are absolutely misleading for investors. German companies that use German GAAP still have one set of accounts for tax and one for investors.”
