Ebitda, schmebitda: flattering accounting standards under fire

By Campbell McIlroy

Friday 1st September 2000

The Stock Exchange wants to see a new body established to make rulings on the use of emerging accounting standards such as ebitda - earnings before interest, tax, depreciation and amortisation.

Managing director Bill Foster said the exchange preferred to leave debates over the technicalities of accounting procedures to accountants. But it had recognised there was a gap developing between accepted and emerging accounting standards.

Some listed companies have come under scrutiny for using new standards such as ebitda to present their figures in the most flattering light - which critics claim is misleading.

In one example a recent Advantage Group media briefing highlighted the company's growth in ebitda from $4 million to $9.7 million before disclosing an actual operating cashflow deficit of $2.4 million when filing its appendix 1 statement with the exchange two days later.

University of Canterbury accounting professor Alan Robb said ebitda was a creation of US analysts and had little validity in this financial reporting environment.

Mr Foster said the exchange was in negotiations with the Institute of Chartered Accountants over setting up a body to make rulings over what should be standard practice in emerging accounting standards.

The Stock Exchange did not have a view or policy on the merits of ebitda.

Mr Foster said he believed there was adequate disclosure in returns filed with the exchange as member firms had to comply with the Financial Reporting Act under the Stock Exchange's listing rules.

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