EDITORIAL: Responsibility is a must with finance

Swearing that company accounts are accurate should be a non-event. Financial statements, it is obvious, should be true, fair and complete. Auditors and company directors alike should be prepared to stand by them. But since the spectacular recent scandals at Enron, Worldcom and a number of other US companies, many people, and US investors in particular, no longer trust corporate leaders to tell the truth without the threat of a jail sentence.

That was the genesis for new rules requiring the chief executive officers and chief financial officers of hundreds of listed US companies with an annual revenue of more than $1.2 billion to swear by their statements by 14 August or admit to problems.

The advertising industry was interested to see whether one company in particular had made the cut. Interpublic, which made a surprise anouncement on 5 August that it would delay its second-quarter earnings report, was under scrutiny because its stock had suffered so dramatically as a direct result of the announcement.

So what happened? Interpublic filed but with caveats - it filed restated earnings for the second quarter of 2002 and said that it would restate results dating back to 1997 after uncovering $68.5 million in expenses within the European operations of McCann-Erickson that had been improperly accounted for.

So now we know. Or we know a little more, anyway. But what does all this mean for the sector as a whole? The new rules, while constituting a royal headache in many ways, are unquestionably a good thing for the reputation of the agency business within the important investor and analyst community. They come as questions were beginning to be raised about how quickly the big three advertising agency companies - Omnicom, Interpublic and WPP - have grown through acquisitions in recent years.

All three have responded. WPP (UK-based, remember) has voluntarily certified its accounts for the year to December 2001 to the US Securities and Exchange Commission. Omnicom, too, has calmed fears by posting decent organic growth in its recent second-quarter results, minimising its reliance on acquisitions. Interpublic is still under the spotlight but at least it has identified the problem and put in motion steps to deal with it.

The lessons from recent weeks for every company are that management has to take its responsibilities seriously, accountants and auditors need to ensure that accuracy is paramount and investors must actively monitor their interests. To do otherwise is to risk further damaging volatility in an already volatile media sector.


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