Impairments likely to follow company withdrawals from Russia

the famous saint basil s cathedral in russia

The Yale School of Management has been compiling a list of companies that have announced their withdrawal from Russia. As of March 31, 2022, almost 500 companies have announced their withdrawal. The obvious and immediate impact to these companies is the loss of revenue. But the other impact facing these companies are the potential losses from investments held in Russia, such as buildings and equipment, and the purchased interests in Russian companies. These losses may manifest in two ways. First, are losses as a result of divestitures of the companies and/or assets held in Russia. Second, although the companies may choose to hold these assets, the sanctions will likely deteriorate their value, requiring a write-down of the assets, businesses acquired and related goodwill. An example of the two-fold impact on companies is MCDonald’s. McDonald’s has reported that the Russian shutdown will cost the company approximately $50 million a month, or 5 cents to 6 cents per share. But the other issue for McDonald’s are the roughly 850 locations in Russia, the majority of which are owned by the company. Will McDonald’s sell these locations at a loss or be required to take an impairment charge?

KBR Fined For Misleading Investors on Key Metric

low angle photography of orange excavator under white clouds
Photo by Anamul Rezwan on

KBR a global engineering, construction, and services company based in Houston, Texas was fined by the SEC for misrepresenting its backlog to investors.  Backlog is a key metric for investors because it provides the dollar amount of revenues a company expects to recognize in the future from contracts awarded and in progress.  “Non-financial statement metrics such as backlog can provide additional insight to investors regarding a company’s performance,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office.  “To the extent that companies disclose these kinds of metrics, companies must ensure they are accurate and not misleading.”

But the SEC asserts that in the second quarter of 2012, KBR included $459 million in its disclosed backlog, despite the fact that KBR had yet to receive, and its customers was not obligated to provide, KBR any orders under the contract.  The backlog remained in place during the next six quarters, even after it became clear that KBR was receiving far fewer work authorizations under the contract than anticipated. SEC Administrative Order

Madoff Victims to Receive Another $504 Million

Several news outlets this week reported that victims of Bernard L. Madoff, would receive an additional $504 million in proceeds from funds that the government seized.  The $504 million, the second in a series of payouts, brings the total to more than $1.2 billion.   The government has said that the approximate 21,000 victims could receive more than $4 billion.  But this amount pales in comparison to the estimated losses of about $65 billion in paper wealth and $17.5 billion in cash.

Victims of Bernard Madoff’s Ponzi Scheme to Receive Millions MoreMadoff Victims to Get New U.S. Government Payout

Due Diligence in M&A Transactions Requires Focus on Cybersecurity

Due diligence today goes beyond determining if the target has excluded liabilities from its books or has been pumping up its sales.  With all the news of data breaches, regulatory violations and cyberattacks, acquirers must focus on potential cybersecurity exposure.  According to the WSJ, “Companies are intensifying due diligence of acquisition targets to avoid costly cybersecurity surprises, particularly when intellectual property, such as software code or customer data drive the deal.” pexels-photo-164686.jpegDue Diligence on Cybersecurity Becomes Bigger Factor in M&A

Forensics and Wine

wine-winery-burgundy-rioja-48848.jpegForensics and wine – not something I’ve previously thought about but apparently wine fraud is prevalent and costly.  Lettie Teague’s first of two reports on wine fraud What It Takes to Out-Sleuth Wine Fraud is fascinating.  According to the article, wine fraudsters use a mix of tools to deceive buyers into thinking a wine is highly prized.  The tools are not sophisticated but include “counterfeit labels, blank corks and empty bottles to be filled.”  Like all fraud, wine fraud isn’t a victimless crime, adversely affecting winery owners’ reputations and hard work costing the industry millions of dollars a year.

Lawsuits serve as cautionary tales for public company boards.

pexels-photo-534216.jpegIn 2017, boards and senior managers at several large corporations faced significant shareholder lawsuits over allegations they were not minding the store when their companies suffered high-profile traumas surrounding data breaches, sexual harassment and discrimination scandals or improper sales practices.

The Center for Audit Quality releases “Non-GAAP Measures: A Roadmap for Audit Committees.”

The Center for Audit Quality recently released “Non-GAAP Measures: A Roadmap for Audit Committees.”  The report summarizes common themes that emerged from a series of 2017 roundtable discussions regarding the presentation and use of non-GAAP measures.  The goal of the report is to provide a “roadmap” that will support audit committees in advancing their oversight of and involvement with non-GAAP measures.  The report concludes that “While there is no one-size-fits-all approach to improving or maintaining trust and confidence in non-GAAP measures, audit committees nevertheless have an important role to play.”