When Accounting Judgment Backfires: What We Can Learn from High-Stakes Estimating Mistakes

9 May

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Accounting estimates may look like just another row in a spreadsheet—but as recent international cases show, when assumptions go wrong, careers, reputations, and shareholder value can go with them.

In 2024 alone, the U.S. Securities and Exchange Commission brought more than 45 enforcement actions involving financial misstatements. While crypto and ESG may be cooling off on the regulatory radar, misjudged accounting decisions are hotter than ever.

Here’s a fast look at the fallout—and the red flags you can’t afford to miss:

🧨 Case 1: Revenue recognition gone rogue

Company: Symbotic Inc. (USA)

What happened: Used percentage-of-completion accounting but recognised revenue too early—before key milestones were reached. Also failed to write off unrecoverable cost overruns.
Result: SEC probe, class action lawsuit, and a 35% share price nosedive.

Lesson: Optimism is not a strategy. Revenue must be earned, not hoped for.

🧨 Case 2: Judgment overridden

Company: Wood Group plc (UK)
What happened: Management allegedly pressured teams to maintain overly positive accounting positions—without proper evidence.
Result: Internal audit red flags, share price dropped by over 68%.

Lesson: A lack of internal independence and transparency invites disaster.

🧨 Case 3: Small tweaks, big consequences

Company: Macy’s Inc. (USA)
What happened: One employee adjusted accruals to hide $151 million in shipping costs over two years.
Result: Executive bonus clawbacks, class action litigation.

Lesson: Even routine estimates like expense accruals demand documentation and oversight.

💡Lessons We Should Learn

Whether you're helping SMEs forecast costs or working in JSE-listed finance teams, these cases hit close to home. SARS, the FSCA, and the FIC are all ramping up scrutiny—and hindsight reviews by regulators are brutal.

✅ What you should be doing right now:

Flag your most material estimates and dig into the assumptions behind them.
Document assumptions, data sources, alternatives considered. If it’s not written down, it didn’t happen.
Stress-test your numbers trying different scenarios and see what breaks.
Don’t isolate accounting, bring in operations, legal, and even internal audit to test judgment areas.
Make transparency your superpower, defensible estimates start with a culture of open challenge.

💬 Talk to your teams. Stay alert. In accounting, judgment calls don’t just affect the bottom line—they can trigger a headline.

Want to share your firm’s approach to avoiding risky estimates? Tag CIBA or drop us a line—we’re here to elevate the profession, one well-judged estimate at a time.

Source Article: Accounting Today

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