Kodak earnings restatement

In November 2005 Kodak restated its Q3 results by $9 million. The restatement was attributed to restructuring and severance costs, plus a real estate gain. The restructuring costs were apparently because they got the accounting treatment wrong; we were told that “the magnitude of the worldwide restructuring program the company is undertaking imposes significant challenges to ensure the appropriate accounting”

There was also an error of $11 million in the severance calculation for just one employee. The error was traced to a faulty spreadsheet: apparently “too many zeros were added to accrued severance”. No payment was actually made to the employee in question (which was lucky for Kodak, but maybe unlucky for the employee). It sounds as if the error was either a simple data entry problem, or, possibly more likely, that the spreadsheet was expecting an entry in $’000 but got one in $.

This could be yet another example of a spreadsheet that is theoretically correct, but is not easy to use. If the wrong information is used for the calculations, then the answers will be wrong: it's our old friend, Garbage In, Garbage Out.

Resources

Correctness is not enough

A paper I presented at the 2003 EuSpRIG conference, explaining what can go wrong with spreadsheets even when all the formulae are correct. It is available from my publications page.

European Spreadsheet Risks Interest Group

This special interest group provides a forum for research on spreadsheets. Its website is at http://www.eusprig.org and includes an excellent collection of spreadsheet horror stories. EuSpRIG organises an annual conference on spreadsheet risks.

Financial Modelling of Project Financing Transactions

A paper that was presented to the Institute of Actuaries of Australia Financial Services Forum, containing interesting statistics on spreadsheet error rates. It's available at http://www.actuaries.asn.au/PublicSite/pdf/fsfpaper2004-jasminandlee.pdf.