Europe's Enron

Unit 8 PAGE 70

Adjectives and adverbs

Finance
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Career skills: Referring to visuals

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www. longman -el t . comww w. economis t. com Dilemma: Counting the costs
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The bottom

Huge Losses experienced by investors and employees

due to mismanagement and irregularities in
fina ncial reporting have led to a demand for stricter
corporate governance. Independent auditors such as
the SEC (Securities and Exchange Commission) in the
US have been checking balance sheets, which show
the overall performance of companies and income
statements (AmE) or profit and loss accounts (BrE)
which show the difference between total income and
 Preview The Profit and Loss Account (P&L)
Stud y the incom plete P & L b elow . Com plete the docum ent w ith the
fo llo w in g headings. Use a d ictio nary to help you.
Research and development costs Cost of materials Gross profit
Interest receivable Turnover Dividend

Consolidated Profit and Loss

for the year ended Dec 31 in $m

Forecast Actual
Money in 1 ............... (sales revenue) 700 704

Oth er e arn in gs
Gains on fixed assets and operations 250 244

2............. on investments 175 162

Money out C o sts of making g oo ds

3 .... and all manufacturing expenses
a
(100)
Money in minus b
Salaries and personnel costs (200)
cost of making
goods ________ 4
825
c

Other money out Oth er c o s ts and e xpenses

Indirect costs or overheads (25) (22)
5 d
(50)

Loss on fixed assets (25) (25)

Loss on foreign operations (100) (88)

Marketing and distribution costs (100)

e

Gross profit minus

other money out _ Trading/Operating Profit 525
f

Money left when Profit for shareholde r* (6 ) 95 9

shareholders have
been paid ______ Retained profit 43 0
h

Q N ow listen to a presentation o f the actual results and com plete

the m issing figures fo r gaps a-h.

68 ■ U n it 8
 Q Listen again and answer the following questions.
1 W hy was gross profit higher than expected?
2 Where did the company decide to have parts made?
3 Which budgets went over the forecast limits?
4 What is expected to happen to the marketing budget in future?
5 How much w ill shareholders receive per share?
6 What prediction does the speaker make about retained profit?

Speaking If you w ere a p o ten tial shareholder w o u ld you feel confident in

investing in this com pany? W h y ? / W h y not?

Listening 2 Creative accounting

a Com p anies som etim es m ake the figures in fin a n cial docum ents
m ore attractive th an they re a lly are. They can do this by:
a inventing revenues from companies that don’t exist
b not including debts of subsidiaries and acquisitions
c hiding debts on the books of subsidiaries
d overstating current profits by including possible future earnings

Listen to two investors ta lk about w h at happened to them w hen

they invested in two m edia com panies. W h ich o f the above m ethods
w ere used to d rive up share prices in each case?

m Listen again and com plete the graphs.

I NavTech
St o c k price Euros ^8), 1 9 9 8 -2 0 0 2

60

50

40

30

20

10

0
1998 2000 2001 2002

Com.TV
Sto ck price Euros (€), 1 9 9 9 -2 0 0 3

140

120

100

80

60

20

i___ 0
1999 2000 2001 2002 2003

Speaking Can you th in k o f an y other fam ous fin a n cia l scandals?

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 Reading Corporate governance
H Read the text about corporate governance. W h at accounting
irregu larities are m entioned ? W h o w as responsible?

Glossary

overwhelming too large to deal with

absolves removes responsibility

Corporate governance

Europe’s Enron
The Ahold financial scandal should shock Europe into accounting and corporate governance reform, just as the Enron
scandal did in the USA.

I
t may seem an exaggeration to executive and finance director after find­ Argentina and several other units. This
describe the scandal overwhelming ing that it had overstated its profits by has led some observers to say that this is
Royal Ahold as “ Europe’s Enron” - but more than 463m ($500m). Its market less a European problem than yet anoth­
in m any ways it is true enough. value plunged by 63 per cent that day, to er US accounting failure. Such a claim
Certainly, the world’s third-biggest food 33bn. In late 2001, it exceeded 30bn. absolves Ahold’s bosses of responsibility
retailer, after Wal-Mart and Carrefour, Ahold is now under investigation by vari­ for their acquisitions and dishonesty
presents none of the financial risks of ous authorities, including the Securities and and ignores the persistent, firm-wide
Enron, which was both deeply in debt Exchange Commission (SEC) in the USA tendency to test the lim its of acceptable
and the world’s largest electricity giant. Rather like Kenneth Lay at Enron, and accounting.
That apart, the similarities between the Dennis Kozlowski at Tyco, another scan­ Most firms that buy in bulk - includ­
former Texan powerhouse and the dal-hit US firm, Ahold’s now-departing ing such admired retailers as Wal-Mart
Dutch retailer are striking, from the very boss, Cees van der Hoeven, won a huge and Tesco - get discounts from suppli­
bad corporate governance, aggressive reputation from turning a dull company ers if they meet sales targets. The issue is
earnings management and accounting into a growth machine. Investors how those rebates are accounted for. The
“ irregularities” to auditors whose role applauded long after they should have accepted practice is to wait until the tar­
must be called into question. started asking hard questions. When gets are met. Failing firms, such as now-
Now, at least, Europeans should stop eventually they did ask them, his anger bankrupt Km art, food distributor
believing that corporate wrong-doing is and pride became quickly apparent and Fleming, and now Ahold appear to have
a US problem that cannot occur in the he refused to answer. booked these rebate payments before
old continent. Instead, they should fix The 463m overstatement is due pri­ they were earned.
their own corporate governance and marily to Ahold’s US Foodservice unit, What of Ahold’s auditor? Although the
accounting problems. which supplies food to schools, hospi­ problems were uncovered, it should have
O n 24 Fe b r u a r y 2003 A h ol d tals and restaurants, although there are done so much earlier, says Lynn Turner, a
announced the resignation of its chief also issues over its Disco subsidiary in former chief accountant at the SEC ■

e
mist

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 0 Read the text again an d answ er the fo llow ing questions.
1 What are the sim ilarities between Enron and Ahold?
2 What should European companies do?
3 W hy did the shareholders admire Cees van der Hoeven?
4 Which of Ahold’s acquisitions is mentioned in the text?
5 What did Europeans believe about corporate wrong-doing in the past?
6 How did Foodservice overstate its sales?

Speaking Do you th in k CEO s w ho fa ls ify accounts are crim in als and should
go to ja il o r is it an acceptable risk to fa ls ify accounts if it helps to
safeguard the com pany’s future and jobs?

Vocabulary Choose the best w ord to fill each gap in the sentences below .
1 Sales are a good way fo r ______________ to get rid of surplus stock.
a retailers b sellers c dealers d wholesalers

2 The company was in fact seriously______________ even though they

claimed to be making a profit.
a at a loss b in debt c in the black d broken
3 Some com panies______________ their earnings to drive up share prices.
a overdo b overflow c overstate d oversee

4 The Financial Services Authority was set up in the U K to deal with

______________ such as fraud and insider trading.
a issues b ideas c reasons d purposes

5 When the CEO should have been cost cutting, he was spending huge
sums o n _____________ that turned out to be unprofitable.
a increases b investors c growth d acquisitions

6 When you buy in bulk you can o b tain ______________ or rebates.

a discounts b sales c decreases d interest

7 Shareholders lost money when the company declared itse lf____________.

a redundant b sold out c broken down d bankrupt
8 When they heard about our financial difficulties o u r_____________
asked to be paid in advance.
a service b deliveries c suppliers d orders

9 They didn’t lie - they simply tried t o ______________ the truth.

a conceal b prevent c reduce d warn
 Language check A d je c tiv e s an d ad ve rb s
Look at the fo llow in g uses o f adjectives.
- before nouns
There w as a dram atic fa ll in profits last year.
- after stative verbs such as be, become, seem., appear, look, etc.
The sim ilarities between A hold a nd Enron are striking.

Look at the fo llow in g uses o f adverbs.

- after verbs
Shares fe ll sharply on the news.
- before an adjective or adverb
... his anger and pride became quickly a p p a r e n t...

-vC] F °r more information, see page 160.

Practice Q Use the fo llo w ing expressions to describe the perform ance o f the
En ro n share p rice 1991-2001.
fluctuated m ildly a sharp increase reached a peak
rose steadily dropped slightly a dramatic and sudden fall

The amazing disintegrating firm

The Enron share price (US $ ), 1 9 9 1 -2 0 0 1

Jo u rn alists use dram atic verbs th at describe the directio n, speed

and degree o f change. W h a t in fo rm atio n do these verbs give?

direction speed large/small degree

plunge sU very f a st very large

dip sP fa s t small
soar
plummet
slide
skyrocket
jump
nosedive
decline

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 Career skills Referring to visuals

Visual aids such as graphs, bar charts, pie charts and flow charts are an important
and effective way of structuring and communicating presentations that include a
lot of statistics. The following phrases are useful for drawing the listeners'
attention to particular details.

As you can see, ... ... ted to the ... you see here ...
You'll notice that, ... ... is obvious on this part of the graph here.
This part of the graph clearly shows ... This slide shows the...

Listening 3 @ | J Look at the graph show ing the perform ance o f the W orldC om
share p rice 1992-2002 and m atch the changes w ith the tim e periods.
Then listen and check yo u r answers.
1 reached a record high a 1992-95
2 nosedived to an all-time low b 1995-98
3 continued to skyrocket c 1998-99
4 started a spectacular ascension d 1999
5 there was a downturn e 1999-02

F I W o rk in p airs. Student A turn to page 139. Student B look at the

b ar chart show ing the A m erican sales o f the Ita lia n food giant
Parm alat, w hich w en t b ankrup t in 2003 w ith debts o f € 14bn.
Describe the ch art to yo ur partner. Then listen to yo ur p artner and
com plete the Eu ropean sales 1996-2003.

I Parmalat operating results I North and Central Am erica

Turnover (€ m iltio n s), 1 9 9 6 - 2 00 3 I Europe

1 996 1997 19 9 8 199 9 2 00 0 2 00 1 2 00 2 200 3

Culture at work Formal and informal presentations

Some cultures expect presentations to be formal and technical. Others find
this dull and ineffective and prefer a more entertaining style of
presentation. What are they like in your country? How might these attitudes
affect the dress, style and use of visual aids in presentations in different
countries?

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