Nortel's Accounting Woes

The news that Nortel will have to delay its 10-K filing to the Securities & Exchange Commission may or not be a troubling development. It may be that the special audit committee looking at Nortel's financial statements from 2000 to 2003 want additional time to dot the “Is” and cross the “Ts”. Or it could be they have found something significant, although it appears that would be a surprise. What the 10-K delay should really draw attention to is the complexity of Nortel's financial results. Unless you have a lot of time and some sophisticated financial training, it is near-impossible to get a clear idea of the telecom maker's performance. Ever since the telecom boom started in the late-1990s, it is hard to determine how Nortel is really doing. If you look at Nortel's Q4 results – – you'll get a handle on this problem. The company posted EPS of US11cents but five or six cents were due to items such as net earnings from discontinued operations – net of tax. Although this item is not part of Nortel's ongoing business, they choose to include it, which is somewhat misleading.

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