Tuesday, January 29, 2013
Much of a business' reputation relies on its numbers. That is why accounting is the primary language of economic entities, (and why PR practitioners should be able to read income and balance sheets.) Caterpillar has learned the hard way how accounting affects reputation with a write-down of Chinese assets. It seems the former parent of a mining machinery manufacturer had fiddled the numbers before selling off the business to Caterpillar. This sort of chicanery is common in Asia where keeping multiple books is a way of life. Caterpillar did its due diligence. It missed the finagling, and now it is taking a blow to its reputation as a well run company. Corporations can get away with a lot but not with manipulation of financial results. It is essential for stakeholders to be able to rely on reports of economic health. Caterpillar will overcome this embarrassment, but it won't forget. It is better to spend millions on vetting numbers before concluding a purchase than having to admit it was cheated.