VideoThe feeding frenzy of the late Nineties is starting to catch up to Corporate America.
Yesterday, Qwest Communications International Inc. became the latest company to write down the value of its past acquisitions. Management at the troubled telecom company said Qwest will report goodwill impairment charges totaling as much as $40.8 billion by the end of the year.
That's a big phone bill. In fact, the writeoff works out to more than half of Qwest's $74 billion in assets.
Earlier this year, media giant AOL Time Warner took a record $54 billion charge to write off goodwill to reflect the sharp decline in the value of its $106.2 billion purchase of Time Warner in 2000.
And last week, AOL warned it will probably report "a substantial overall goodwill impairment" when it completes its impairment analysis under FAS 142 at the end of the fourth quarter.
Here's how Qwest arrived at the $40.8 figure.
Company management had already said it expects to report a goodwill impairment charge of approximately $24 billion as of January 1, 2002, the effective date of FAS 142.
On Monday, however, Qwest management said that other factors (such as the business conditions in the telecom industry and the company's market capitalization during 2002) may result in an additional impairment of $6 billion of goodwill. The company has about 29 million customers in the U.S.
Qwest will also record an $8.1 billion impairment charge for the second quarter of 2002 to write-down the recoverability of the long-lived assets of its traditional telephone network, global fiber optic broadband network, and related assets.
The telco also figures to take about an $2.7 billion reduction in the carrying value of intangible assets related to customer lists and product technology associated with the company's interexchange carrier business.
In yesterday's announcement, Qwest management also indicated it would restate $531 million of revenues. In explaining the restatement, the telco's management noted that Qwest's policies and practices for determining the value of the various elements of the fees earned in connection with the sales of optical capacity assets did not support the accounting treatment. Qwest recorded a net loss of about $4 billion in 2001.
The company added the announcement relates to optical capacity asset transactions recorded in periods following the merger of Qwest and US West, Inc. on June 30, 2000.
As CFO.com reported in late July, Qwest said it may restate the company's results for 1999, 2000 and 2001 in connection with sales of optical capacity assets. Qwest management said at the time it misapplied about $1.16 billion in optical capacity sales.
And back in March, CFO.com also reported that the SEC was investigating Qwest's accounting policies, practices, and procedures for 2000 and 2001.
The Justice Department and Congress are currently investigating Qwest.
Will Sarbanes-Oxley Hurt Tax Business?
While some lawmakers and regulators succeeded in preventing the selection of shareholder rights activist John Biggs as the new head of the Public Company Accounting Oversight Board (PCAOB), that doesn't mean it's smooth sailing for accounting firms. In fact, one of the members elected to the PCAOB last week believes the accounting industry could be headed for some tough times -- thanks to certain requirements of the Sarbanes-Oxley bill.
Daniel Goelzer, who served as the general counsel of the SEC for more than seven years, thinks accounting firms could lose billions of dollars of tax business when the Sarbanes-Oxley Act is fully enacted.
That's big news, given that many in the auditing business believe Sarbanes-Oxley, which was passed in August, doesn't cover tax work.
In an article he co-wrote for The Tax Executive (due out next month), Goelzer suggests that the bill could be interpreted by regulators as placing heavy restrictions on tax services, according to the ft.com.
The reason he raises these doubts: The act leaves the exact wording of new rules in the hands of the SEC. The PCAOB will also play a role, which means Goelzer himself will have a say.
"I have an open mind," Goelzer told the ft.com. "I would want to decide in consultation with the other four board members."
The stakes are certainly high. Audit firms earned about $10.6 billion in audit fees in 2001, according to the web site, citing Arthur Bowman, an industry analyst.
Admittedly, much of that sum involves the preparation of tax returns and other services that are not endangered by Sarbanes-Oxley. But Goelzer reportedly said the most expensive tax consulting contracts could be in jeopardy.
"Many non-audit tax services … now may well be prohibited, including tax services relating to appraisals, valuations, actuarial services, tax controversy representation, legal services and expert witness services," he reportedly said in the article, co-written with Mark Oates, a colleague at law firm Baker & McKenzie. "Uncertainty shrouds still other non-audit tax services."
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