Management at Tyco International said a review of the company’s accounting and corporate governance practices did not turn up any acts of fraud.

Nevertheless, Tyco management said it will make a $382.2 million pre-tax adjustment to the company’s fiscal 2002 results. The reason for the restatement? The conglomerate’s management said its review did uncover “a number of accounting entries and treatments that were incorrect.”

Tyco’s management added that the incorrect accounting entries and treatments are not “material” to the company’s overall financial statements.

“The company is not aware of any systemic or significant fraud related to the company’s financial statements or of any clear accounting errors that would materially adversely affect the company’s reported earnings or cash flow from operations for the year 2003 and thereafter,” Tyco management asserted in a regulatory filing.

Even so, Tyco’s current management team criticized Tyco’s previous management team, noting that the prior regime “engaged in a pattern of aggressive accounting which, even when in accordance with Generally Accepted Accounting Principles, was intended to increase reported earnings above what they would have been if more conservative accounting had been employed.”

Tyco management added: “As discussed in the September 2002 Report, prior senior management’s stewardship of Tyco was characterized by serious abuses of trust and self-dealing by the highest officers of Tyco. During at least 1999 to 2002, Tyco’s prior senior management from time to time failed to properly report and account for their compensation and conduct.”

In September former Tyco chairman and CEO Dennis Kozlowski and former chief financial officer Mark Swartz were indicted for allegedly stealing $170 million from the company and pocketing $430 million from fraudulent sales of Tyco stock. Former general counsel Mark A. Belnick was charged with hiding $14 million in loans to himself.

New Tyco CEO Edward Breen, chief financial officer David FitzPatrick, and auditor PriceWaterhouseCoopers signed off on the company’s latest financial statements (for fiscal 2002).

The law firm of Boies, Schiller & Flexner LLP, and accountants from Ernst & Young, KPMG, and Urbach, Kahn & Werlin took part in Tyco’s internal review, examining the company’s 1999-2002 reported revenues, profits, cash flow, internal auditing, and control procedures. The group also looked at Tyco’s accounting for major acquisitions and reserves, the use of non-recurring charges, the personal use of corporate assets, the use of corporate funds to pay personal expenses, employee loan and loan forgiveness programs, and corporate governance issues.

The review also included an examination of 15 mergers and acquisitions with a total purchase price of about $30 billion. Tyco said the Boies law firm received the full cooperation of Tyco’s independent auditor, PricewaterhouseCoopers, as well as Tyco’s current management.

The report seemed to confirm a CFO.com story which ran in April (“Deconstructing Tyco.”). In the article, several critics claimed that Tyco management manipulated its accounting for acquisitions to boost the company’s financial results. In addition, one portfolio manager claimed that, in the wake of the Enron scandal, Tyco management could not longer use aggressive accounting to help it hit its growth targets. That, in turn, had led the company to try to sell off parts of its businesses.

In the filing, current Tyco management admitted that the company suffered a litany of internal control and governance failures under Kozlowski’s watch. The rather lengthy list of worst-practices includes poor documentation; inadequate policies and procedures to prevent the misconduct of senior executives; inadequate procedures for proper corporate authorizations.; inadequate approval procedures and documentation; a lack of oversight by senior management at the corporate level; and a pattern of aggressive accounting. The filing also criticized Tyco’s former management for failing to set appropriate standards of ethics, integrity, accounting, and corporate governance.

Benchmarking U.S. Accounting Methods

If you want to get an idea of how badly the economy has deteriorated in Japan, consider this: A Japanese financial services watchdog agency is calling on its banks to apply tougher U.S.-style accounting to their bad loans, according to Dow Jones.

This is no joke.

To get local financial institutions to finally face up to the reality of decades of disastrous lending practices, Japan’s Financial Services Agency said it would ask the country’s five largest banks to use the discounted cash flow method to calculate bad loans by March 31 (the end of the current fiscal year). The agency stopped short of actually mandating the accounting change, however.

The discounted cash flow method would force many banks in Japan to lower the value of their loans and other assets. Those are currently valued according to potential returns, which could also expose more bad loans.

“We are suggesting this as the best practice for the banks, although we will avoid making it the minimum standard,” an FSA official said, according to Dow Jones.

For many years, outsiders have blamed the enormous debt taken on by these huge banks for a large portion of Japan’s recent economic woes.

Akio Okuyama, who heads the Japanese Institute of Certified Public Accountants, told the Associated Press that banks are already making the transition to the new accounting method, which would force banks to more accurately report bad loans.

But, according to the wire service, critics say the accounting changes won’t accelerate bad debt write-offs and could prompt some banks to cut lending to small and medium-sized businesses.

Just what they need in Japan: another credit crunch.

CFO, CEO Buy Company

The chief financial officer and chief executive officer of Resonate Inc. are buying the business services company in a leveraged buyout.

Rocket Holdings, LLC, a Delaware limited liability company wholly-owned by Resonate CFO Richard Hornstein and CEO Peter Watkins, said they will buy all of the outstanding shares of Resonate common stock.

Resonate said Watkins, who sits on the company’s board of directors, did not participate in any of the deliberations of the Resonate board when it approved the transaction.

Under the terms of the merger, Rocket will use the company’s cash and cash equivalents to acquire all of the outstanding shares of Resonate common stock for $1.79 per share, putting the value of the transaction at around $50 million.

Observers say the deal might spark a revival of interest in management buyouts. MBOs, which were popular during the junk-bond frenzy of the late 1980s, have been dormant in recent years.