IBM Corp started relaxing its strict accounting practices way back in 1984, just as the company’s core mainframe business began to lose its impetus, although no-one realised it at the time. This is the conclusion of an in-depth Wall Street Journal investigation which suggests that its moves may have served to bolster its results on a short-term basis and push problems into the future. The paper says that former IBM chief outside auditor Donald Chandler of Price Waterhouse & Co wrote in a 1988 memo that IBM was reporting revenues that it might never realise by booking sales when products were shipped – to its own warehouses for onward staging to customers, or to dealers who could return them. The report said for over 10 years, IBM has been booking immediately all the revenues from some long-term computer leases, getting a residual value guarantee from Merrill Lynch & Co to bring the total of the lease payments plus the residual value up to the 90% of the sale price that accountants regard as prudent for a sales-type lease. From 1984, the company also started extending more of the costs of new factories and other investments into future accounting periods – in the belief that the mainframe business would pick up again and justify the move. IBM calls the Chandler memo part of normal give-and-take between a company and an auditor with a flair for peppery language. Chandler, who retired last year, said in a statement released by IBM that his work with the company was totally open and frank. Of his specific criticisms, he cautioned, It’s absolutely vital that they not be taken out of context and that every significant matter was satisfactorily resolved and that heconsistently blessed IBM with clean audit opinions.
