‘Viva la Juventus’
No. This is not the viva you are very much used to, the university examination with spoken questions and answers; oral examination.
Advertisement
But it is also about an examination of some sort, this time looking at how, perhaps, bad practices by a global football giant could spell doom for the club and fans.
Ordinarily, in Italian, viva la Juventus means Juventus forever, but is it really? In fact, last week, a story l read about Juventus, the Italian football giant, took my mind back to two articles l wrote in this column; one on July 18, 2020, and the other on September 4, 2021.
In the article last week, it was claimed that the Italian Football Federation had found some “trickery” on the part of the country’s biggest football club in its transfer dealings.
The allegation was that Juventus was guilty of managing capital gains from transfers to artificially benefit its balance sheet! Creative accounting that is.
I found the story very disturbing because it actually creates a bleak future for the club, given that the club could suffer points penalty – currently estimated to be 15 points per the rules of the football federation. Well, there are still some avenues open to the club to fight this case, so more courtroom drama looms.
I was intrigued by the story in many ways because creative accounting is not new in the field of accounting. There have been several instances in economic history where companies have reported on financial positions that do not reflect a true and fair state of affairs.
In fact, there have been instances where a global accounting firm of repute, Arthur Andersen, founded in 1913, had to close shop in mid-2002 when poor accounting practices involving Enron and Worldcom caused significant damage to its franchise value.
Arthur Andresen was one of the so-called “Big Five” accounting/consulting firms, providing among other services, tax and management consulting services, yet, it couldn’t pass the moral test.
So, this is where the July 18, 2020 article comes in. In the July 18, 2020 submission, I looked at another scandal, this time involving Wirecard AG. Wirecard, according to available records on its line of business, offered customers electronic payment transactions services and risk management.
The company adopted an aggressive business growth strategy, gaining a foothold in major countries, including Germany, UK and China, either through its own established subsidiaries or through its numerous network of associates and affiliates. It was popular with the gaming industry.
But on June 25 2020, the company’s operations hit rock bottom, as it filed for insolvency, after revelations that almost 2 billion euros had allegedly gone missing. Senior officials were interrogated, and some arrests were made.
The raging debate about how such financial scandal could happen centered on two main areas- perceived regulatory failures, and poor oversight role by a big accounting firm.
So, using my submission in the September 26, 2014 edition of this column, on Money and Morals, l explained in the July 25, 2020 edition why people who pride themselves on being highly ethical stray from their principles when money is in the offing.
Let me, at this point, re-introduce the poem by Chuang Tzu, which l used in the July 18 2020 edition:
The invention
Of weights and measures
Makes robbery easier.
Signing contracts, and setting seals,
Makes robbery more sure.
Teaching love and duty
Provides a fitting language
With which to prove that robbery
Is really for the general good.
A poor man must swing
For stealing a belt buckle
But if a rich man steals a whole state
He is acclaimed
As statesman of the year.
The invention of weights and measures makes robbery easier indeed!
In the September 4, 2021 edition, I explained how Italian mathematician, Luca Pacioli warned that the “accountant must not sleep until the debits are equal to credits.' Pacioli is credited for the invention of, and the use of journals and ledgers in accounting systems and his work dates back to more than 500 years.
In his book “Decomputis et scripturis,” which forms part of his well-known book “Summa de arithmetica, geometria, proportioni et proporzionalità” (Review of arithmetic, geometry, ratio and proportion) he poignantly stated that: “My method is nothing but an appropriate way of bringing order to the merchant’s fantasy, allowing him to gain an overview of all his affairs and to see easily whether they are in good shape or bad.”
Pacioli’s teachings are still relevant today in more ways than one, as his views reflect the general truth and the operation of general laws that if you fail to balance the scale of your financial assets and liabilities, chances are, you will show more red than black. But that balancing act must not be done fraudulently with the intention to deceive anyone.
For this reason, ethical conduct must be the rule of the game. l believe that ethical and moral uprightness of the people who were in charge and running the affairs of the companies used as examples in this article could have saved them.
Regulation is only a small part of a long stretch of actors in a chain of interactions within the business ecosystem. What this means is that the rule book can be millions of pages long, but if the people who are expected to obey the laws and comply with regulations and directives suffer from some form of stunted moral development, it will be of no effect.
It is all about people, and it seems that on this occasion Juventus might have failed because of its own ethical lapses.
The next big issue is the accounting firms that have been blamed for going to sleep on the job, which certainly would upset Pacioli.
There are various measurements in the preparation of financial statements that could involve some element of discretion on the part of the preparer as well as the auditor. Also, there are some elements within the preparation of financial accounts that can be “manipulated” to project an organisation in good light, even though the reality may be different. This is where Juventus seems to have faulted.
Some call it creative accounting, whereas others see it as pure manipulation, and under some circumstances fraud.
For instance, the smart accountant can “time” receipts and payments in such a way that it would smoothen the cash flow position over a period- revenue recognition-, or could even use capital allowances or other tax avoidance schemes to reduce the overall tax effect. After all, tax avoidance schemes are allowed and actually examined under an Advanced Taxation paper involving tax planning, but it is tax evasion which is a crime.
Significantly, when you are an ethically minded professional, you don’t even get close to the thin line between tax avoidance and evasion. You don’t see it blurry! You don’t fall foul of the law.
Juventus aims to play in the European Champions League every year, and so too must it strive to maintain the high moral ground to avoid controversy. Reputation is as good as cash.