After announcing ‘record’ fourth quarter 2002 earnings of nearly $100 million in February, Core Laboratories was forced into an embarrassing restatement of its 2002 results following an accounting snafu. A variety of accounting errors caused CoreLab’s earnings for the full year to fall by 48% - down from 44 cents to 23. The revisions stem from the issuance of duplicate invoices in the company’s Mexican operations, higher provisions for doubtful accounts receivables, ‘timely’ booking of expenses and foreign exchange losses, changes in the estimated life of certain assets and the consolidation costs of two Nigerian offices.
CoreLab stated that it has taken ‘immediate steps’ to modify the activities and control procedures that led to the restatement – including firing some managers and field accounting staff. The company has also boosted its internal control and audit and corporate accounting functions. Speaking to analysts, CoreLab officers explained that “heads have rolled” and new accountants and internal auditors have been hired and staff provided with enhanced training. Core’s reservoir management facility in London has been closed. A new ERP system was installed in December 2003 which should help in the future.
Following CoreLab’s announcement, four law firms have instigated class actions against the company for issuing ‘a series of materially false and misleading statements to the market throughout the Class Period which statements had the effect of artificially inflating the market price of the Company’s securities’. Core management is sanguine about the problems. Four officers of the company purchased a total of $100,000 of the company’s stock last month and the company is ‘very active’ in stock buy-back at current stock levels.
Acknowledging these accounting issues should have been spotted more quickly, CoreLab is to augment its Enterprise Resource Planning (ERP) tools with the acceleration and expansion of a new global enterprise-wide financial reporting system. Based on Oracle 11i Financials, the internet–based system is designed for organizations with dispersed locations.
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