Accounting worries hit IBM


IBM insists its accounting was proper

Shares in International Business Machines (IBM), the PC, software and computer services giant, fell sharply as concern about its accounting practices spread on Wall Street.
IBM shares lost $5 to close at just less than $103 after a newspaper article in New York Times suggested the company included the income from a sale of a subsidiary as intellectual property income and licensing royalties in its accounts.



This augurs debate of what is normal operating earnings versus extraordinary earnings

John Rutledge
portfolio manager
Evergreen Technology Fund
The added income was claimed to have enabled IBM to beat earnings expectations when it reported fourth quarter earnings.

The newspaper article said the payment should have been entered as a one-off gain.

"This augurs debate of what is normal operating earnings versus extraordinary earnings," said Evergreen Technology Fund portfolio manager John Rutledge.

IBM said the $340m sale of an optical transceiver business in December was entered into its account in a proper way.

"IBM's accounting is conservative and fully compliant with all regulatory standards," said IBM spokeswoman Carol Makovich.

Shares hit

Traders reacted quickly to the rising concerns about IBM's accounting practices.

"Is this a major issue for IBM? On the surface I'd say no, I'd say this is a matter of interpretation, but this is a stock market that is 'sell now, ask questions later'," Ghriskey Capital Partners president Tim Ghriskey, referring to traders' heightened sensitivity to accounting irregularities in the wake of the Enron scandal.

IBM has previously been criticised for including pension fund gains in its earnings.

Lack of transparency of its accounts has also been an issue.

But some analysts said IBM had done the right thing, suggesting that traders were over reacting.


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