RegulationCorporate GovernanceProfit warnings caused by ‘too little, too late’ policies

Profit warnings caused by 'too little, too late' policies

Stop using rear-view mirror accounting policies, companies told

The surge in profit warnings by UK companies could have been prevented if
more companies stopped using ‘rear-view mirror accounting techniques.

Speaking at last week’s Financial Director Summit, Robert Bittlestone,
chairman of consultancy Metapraxis urged companies to use up-to-date techniques
to provide more insight into their business.

‘It is hardly surprising that “rear-view mirror” accounting increases the
likelihood of a profit warning, which is the business equivalent of the lookout
on the Titanic: too little and too late,’ he said. He recommended companies
focus more on ‘upstream’ indicators — often including key non-financial data —
rather than relying simply on ‘downstream’ profit.

Bittlestone also suggested that multinational corporations were particularly
exposed to the risk of profit warnings when business uncertainty increased or
when a long-standing finance director left.

‘In any company there will be some subsidiaries or product groups that
consistently under-perform, some that tend to come in on budget and some that
consistently exceed their targets. Once a group finance director has spent a few
years becoming acquainted with his or her business colleagues, he or she will be
able to compensate for their forecast bias via some form of central provision.

‘But this informal system tends to collapse when there is an increase in
business uncertainty or when a well-established finance director leaves and the
new incumbent lacks these intuitive antennae.’

Related Articles

Corporate governance: staying ahead in accountancy

Corporate Governance Corporate governance: staying ahead in accountancy

3m Alia Shoaib, Reporter
One in 20 audit firms quit as market evolves

Audit One in 20 audit firms quit as market evolves

1y Kevin Reed, Writer
Colin: #EURef bankers a problem

Business Regulation Colin: #EURef bankers a problem

1y Taking Stock
PwC and Deloitte chiefs sign Remain letter

Business Regulation PwC and Deloitte chiefs sign Remain letter

1y Kevin Reed, Writer
Leader: Audit competition drives change, not necessarily quality

Accounting Firms Leader: Audit competition drives change, not necessarily quality

1y Kevin Reed, Writer
EU audit reform to open up £10bn market for firms

Accounting Firms EU audit reform to open up £10bn market for firms

1y Richard Crump, Writer
Best Practice: Saffery Champness managing partner Rob Elliott

Accounting Firms Best Practice: Saffery Champness managing partner Rob Elliott

2y Calum Fuller, Reporter
Standard Life Investments opposes EY's appointment as Shell auditors at AGM

Accounting Firms Standard Life Investments opposes EY's appointment as Shell auditors at AGM

2y Richard Crump, Writer