Accountant 'perplexed' by Nortel financial statement, court hears

REUTERS FILE PHOTO

REUTERS FILE PHOTO

Alex Consiglio, QMI Agency

, Last Updated: 6:04 PM ET

TORONTO - The accountant responsible for forecasting Nortel Networks’ finances told a Toronto court Friday he was “perplexed” by its first-quarter financial statement of 2003.

Brian Harrison was testifying at the trial of his former bosses, including chief executive Frank Dunn, chief financial officer Douglas Beatty and controller Michael Gollogly, who face seven counts each relating to an alleged elaborate accounting scheme.

The charges include two counts of fraud affecting a public market, two counts of falsifying books and documents, and three counts of issuing a materially wrong prospectus.

Harrison was the Crown’s first witness as it aims to prove allegations the three former executives manipulated the company’s finances to trigger bonus payments.

“I was a bit perplexed,” said Harrison, explaining he saw no reason why an $80 million liability was released in the first-quarter statement of 2003.

He told the court it was a plan that made his associates “uncomfortable.”

The Crown alleges the $80 million shouldn’t have been released in that quarter, and in fact, Harrison suggested it be released in the fourth-quarter of 2002.

“It didn’t make any sense that we had a reason to release it in this particular quarter,” said Harrison. “There was no justification for it”

By saving its release for the first-quarter of 2003, the Crown alleges Nortel was able to report a loss in the fourth-quarter of 2002 and then bump-up profits enough in 2003 to trigger a “return to profit” clause.

That clause allowed millions in bonuses to be awarded to executives if they were able to return the company to profit after losses in 2002.

Harrison said once the books were closed on the 2003 first-quarter, an external audit was performed by Deloitte and Touche and the firm challenged the release during a meeting he attended.

He was then asked to leave the room and the meeting continued, said Harrison, with two members of the firm and Gollogly, Nortel’s former controller, until the $80 million release was approved.

The trial resumes Jan. 30 and is expected to stretch into the summer.


Photos