Dressing up the truth
Many of the balance sheets of listed companies for 2001 may be described as monuments to managerial arbitrariness, falsifying their financial picture to an amazing degree. The performance of Athens bourse-listed companies last year is largely disappointing, with profitability receding by about 25 percent on average, lower turnover in many cases, a significant increase in the debt burden, a rise in operating costs and the posting of losses for the first time. And these facts only partly reflect the true picture, as balance sheets only tell half the truth. A large number of firms have sustained substantial losses due to a slide in the value of their security portfolios, but these are nowhere to be found in their balance sheets. The reason is the relevant provision in the recent bill on entrepreneurship that enabled companies to enter reserves against losses, thus reducing their capital, or shareholders’ funds. Most listed firms availed themselves of this opportunity even before the bill was passed by Parliament. In this way, losses of hundreds of millions of euros have disappeared, trimming the capital value of firms and the property of shareholders. The provision in question waived companies’ obligation to account for non-operating losses, such as from portfolio investments, directly against profits. The result is a distortion of reality and, obviously, grounds for considerable concern. Companies that are one step in front of the abyss give the misleading impression that they are healthy, with all that this may imply for the general credibility of the Greek economy. As if this were not enough, the truth is further distorted by the use of accounting tricks, the falsification of data and omissions, which, even when pointed out by auditors, are neither explained nor evaluated. The Enron fiasco in the US is repeated on a much smaller scale in several cases. It is frequently difficult even for the specialists to decipher the complex accounting puzzles. The same largely applies to the chartered auditors who are assigned the task of certifying the authenticity and reliability of the data in financial statements. There is no doubt that the system is lax and wanting, by watering down the principles of sound accounting to the demands of the market. A characteristic example of the inefficacy of carrying out substantive auditing is the admission of the chartered auditor signing the balance sheet of construction company Balafas. He reports that «According to a written statement of the Chairman of the Board of Directors, the company’s cash in hand, amounting to 547,701,355 drachmas (1,607,340 euros), is kept in a special safe for security reasons. It was not possible to carry out a counting of the sum due to absence of the Chairman of the Board of Directors»! It is true that chartered auditors find many gaps and curiosities in the financial statements they apply themselves to and in most cases they point these out, leaving the unknowing and unsuspecting readers to draw their own conclusions The auditor signing the report on Imaco’s financial statements notes: «A sum of 3.14 billion drachmas is included in the holdings account, which concerns the acquisition cost of ten societes anonymes and one Ltd company. The amount of 3.14 billion drachmas (9,214,000 euros) includes 960.9 million drachmas (2,820,000 euros) which represents the cost of acquisition of shares of the affiliate company Powernet, against which, in common with its subsidiary Hellenic Portal, procedures for liquidation have been initiated. Contrary to what the National General Accounting Standard lays down, the audited company made a 960.9 million drachma (2.82 million euro) provision for a value adjustment of its share in Powernet, and a provision for writing off its claims against the latter and its subsidiary Hellenic Portal, totaling 750.5 million drachmas (2,201,000 euros), without deducting these from the results but including it under the «Carried forward» entry in the Shareholders’ Funds account. It was quite a frequent phenomenon in the 2001 balance statements for holdings in non-listed companies to be evaluated at acquisition cost, which is a multiple of their accounting value. The auditors pointed out in vain that such holdings have lost their value. As a rule, investors remain oblivious of such practices. In the case of another listed company, the holdings in two non-listed firms have been evaluated even higher than their acquisition cost by 22 billion drachmas. Things are not much different regarding holdings in other listed firms, which is a much more popular practice. Companies which under normal circumstances reported big losses for 2000 are now showing profits. The list of companies that made use of the provision for the entry of reserves against non-operating losses – which reduces a company’s capital by that amount – even before the bill was passed by Parliament includes the following, with the respective declines in own capital from 2000. – Altec, from 60.3 to 53.6 billion drachmas (177.0 to 157.3 million euros) – National Real Estate, from 81.2 to 56.6 billion drachmas (238.3 to 166.1 million euros). – Datamedia, from 7.9 to 5.4 billion drachmas (23.2 to 15.8 million euros). – Epilektos, from 21.1 to 18.8 billion drachmas (61.9 to 55.1 million euros). – Viohalco, from 358 to 313 billion drachmas (105.1 to 91.9 million euros). – Notos Com Holdings, from 35.2 to 12 billion drachmas (103.3 to 35.2 million euros). – Piraeus Bank, from 307.2 to 232.6 billion drachmas (901.5 to 682.6 million euros). – Minoan Lines, from 136.8 to 113.4 billion drachmas (401.5 to 332.8 million euros). – Lymberis Publications, from 8.4 to 5.4 billion drachmas (24.7 to 15.8 million euros). – Sanyo Hellas Holdings, from 85.1 to 50.1 billion drachmas (249.7 to 147.0 million euros). – Ideal Group, from 16.6 to 12.2 billion drachmas (48.7 to 35.8 million euros). – Papastratos, from 25.5 to 18.4 billion drachmas (74.8 to 54.0 million euros). – Ethniki General Insurance, from 54.5 to 35.4 billion drachmas (160.0 to 103.9 million euros) – Olympic Catering, from 6.8 to 4.7 billion drachmas (20.0 to 13.8 million euros).
