4 Times Accounting Errors Cost Big Companies Big Money
It’s no secret that companies make accounting errors all the time. Some of those are the result of fraud, but even when everyone is acting in good faith, mistakes can happen. Sometimes the impact is more about inconvenience than anything else, as you have to invest the time to correct the errors properly. But even small mistakes can mean big financial losses, unhappy customers, or even legal action. As a reminder of why it’s important to make sure your accounting is done right, here are four big companies who felt the pain of basic accounting errors.
1. Uber Fails at Arithmetic
Amidst a slew of other recent controversies, Uber came under fire earlier this year for applying an incorrect accounting formula to its driver commission calculations. Over the past two years, the company had taken its 25 percent cut off the top of each ride’s total fare before taxes and fees were applied.
While the company admitted the error and promised to give the drivers their due, the impact to the company’s bottom line is estimated to be between $45 and $50 million—all as a result of a simple arithmetic error.
2. Bank of America’s Billion Dollar Blunder
In 2014, Bank of America reported that an honest accounting mistake had prevented them from reporting unrealized losses on debts inherited from Merrill Lynch. The amount hidden from regulators? Four billion.
The problems began when BofA began selling its Merrill Lynch debt. These transactions made the unrealized losses into tangible losses which the bank should have reported to regulators. However, it did not, and claimed that the mistake was merely caused by an employee mishandling a spreadsheet.
3. Valeant’s Compounding Problems
Valeant Pharmaceuticals has been no stranger to controversy over the past few years, the least of which was an accounting mistake that caused them to incorrectly claim over $58 million in revenue. While this sum is a drop in the bucket compared to Valeant’s multi-billion dollar annual revenue, the accounting error led credence to the pharmaceutical company’s critics who claimed that the organization had a long history of aggressive and shady accounting practices. While SEC investigations proved that Valeant had more trouble than simple accounting errors, its collective mistakes caused its stock prices to plunge by 86 percent in 2016.
4. Groupon Forgets the Refunds
Back in 2012, daily-deals purveyor Groupon suffered a series of accounting missteps and clerical errors that drew ire from customers and investors alike. In this particular instance, Groupon reported its fourth-quarter earnings without accounting for the entirety of customer refunds it was dealing with. As a result, Groupon’s fourth-quarter losses increased from $42.7 million to $62.9 million, with a stock decline of six percent following the announcement. Groupon’s accounting firm cited the cause of the error as a “material weakness in its internal controls.”
Accounting Mistakes Really Can Cost You
As Uber, Groupon, BofA, and Valeant demonstrate, even the simplest accounting mistakes can cost a company big. And these are just a few examples; the business world is littered with examples of poor bookkeeping and accounting mismanagement leading to unnecessary costs. There’s no shortcut: make sure you have the controls and guidance you need to ensure accurate and compliant accounting across your business.
Learn more about how to avoid costly accounting mistakes and get the most out of your accounting software by downloading our free guide.