Error sees Hamworthy axe divisional FD

Valuing a ‘work in progress’ can cause major problems for business. Just ask
the UK oil and gas services company, which last week announced accounting errors
and the departure of a finance director at one of its divisions.

Hamworthy, which provides specialist equipment and services to offshore and
onshore oil and gas markets, last week fired the FD of its inert gas division
following the discovery of accounting errors related to inventory value.

An overstatement in inventories and related balance sheet accounts of £4.6m
was unearthed following an investigation by
& Young
. The accounts to 31 March this year need a readjustment of
around £1m. The rest of the figure relates to the financial years 2005 to 2007.

chief executive Joe Oatley declined to name the departed finance director at the
inert gas division, but told Accountancy Age: ‘It was an honest error.
The guy was trying to do the right thing but he was not following our company’s
internal accounting rules.’

Hamworthy has said the error was an isolated incident, adding that it has
strengthened internal controls and management at the division to stop the
problem happening again.

Brian Singleton-Green, manager of corporate reporting at the ICAEW, declined
to comment on the Hamworthy errors but said it can be tricky to value ‘work in
progress’ inventory ­ assets that are somewhere between raw materials and
finished goods. In addition to manufacturing work in progress inventory can also
apply to services, including accountancy.

Singleton-Green said valuing machines that are used to make different assets
can cause problems.

‘The main problem is that it’s a matter of judgment how you allocate the
depreciation of the machine across the different assets the machine produces,’
he said.

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