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http://www.wsj.com/articles/hertz-estimates-costs-of-accounting-issues-at-181-million-1424868762
The article from Wall Street Journal talks about a recent accounting issue which can cost a company a whopping $153 million. The accounting issue dates back to 2011 and the effect of the same is reflected now which shows the huge cost to the company. The company is Hertz Global Holdings Inc. which stated that accounting issues dating back to 2011 will have a huge effect on the pretax profit of the company. The company decided to cut costs so as to cover up the huge dent in the pretax profits. The company now has to cut costs up to $200 million which is double than the previous estimate. The announcement was made as a part of the quarterly results after which the shares of the company saw a steep fall. They fell by 7% and have been consistently falling by 19% in the past one year.
Hertz had initially estimated the costs to cover up the accounting issues to be around $100 million. In the re estimate, it turned out to be $200 million. The investigations are on which will have an impact on the financial statements of the company. The investigations will take time to show a complete and concise result, until then the company will only have to make estimates of the costs. The company has stated that they will restate the results of 2011 and 2012. Its international car rental revenue fell by 5%. And the company’s equipment rental business posted a profit this year.
The article shows that an old accounting issue or a wrong estimate affects the subsequent years to a great extent. The profit has to be restated along with all the accounting issues. An accounting issue once detected, has to be investigated thoroughly and any concerns have to be reported. To correctly show the profits of the company, it is necessary to follow the accounting standards and ensure that the reporting is done in the manner required. In case an issue occurs, the accounts need to be restated and the profit is to be re estimated. This also leads to an effect on the shares and goodwill of the company which eventually affects the credit rating of the company. As for Hertz, the company has to cut costs to a large extent so as to cover up the dent in the pretax profits. This means the company will have to investigate and then work upon it. Accounting issues may relate to a couple of years back but as and when detected, they need to be addressed immediately so as to avoid carrying forward the same errors.
This shows the accuracy required in reporting done by a company. An issue may cause huge damages to the company as well as affect the stock prices of the same. Hertz will also have to decide on various areas to cut the costs so as to cover up $153 million. Accounting standards set by the Board need to be followed and regulated so that such issues do not occur. The investigation will reveal the exact accounting issue faced by the company, until then it has to try to cut costs and cover up the losses of 2011. Accounting statements until 2013 will have to be restated so as to correct the mistake occurred in 2011.

Dulaney, Chelsey. Hertz Estimates Impact of Accounting Issues at $153 Million. 25 Feb 2015. <http://www.wsj.com/articles/hertz-estimates-costs-of-accounting-issues-at-181-million-1424868762>.