Atos Gets An F

Image source: Apirut Siri, K.Narloch-Liberra, Amy Goodchild, woaiss - Shutterstock

What's going on?

French tech company Atos announced on Thursday that auditors had found two teensy-weensy accounting errors – and its stock price plummeted.

What does this mean?

Accountants regularly check a company’s financial statements to make sure it isn’t misleading investors. Most of the time everything is perfectly fine, but at Atos they uncovered a nasty surprise. There were several mistakes relating to how two of Atos’s US units – which together contributed 11% of the company’s total sales last year – reported revenue from customers.

While this wasn’t quite the $2 billion black hole auditors discovered at payments processor Wirecard last year, and Atos was quick to point out the errors weren’t “material”, the damage had already been done. Investors understandably hate any uncertainty around the trustworthiness of a company’s numbers: they sent Atos’s shares down 12%.

Why should I care?

For markets: Accounting errors = potential bubble trouble. 

A few shoddy figures could herald bigger problems for investors: recent analysis from investment bank Goldman Sachs suggests that accounting scandals have historically been a sign of market bubbles a-brewing (tweet this). Still, it may be a little too soon to sound the alarm and break out the pitchforks: Goldman admits scandals can emerge at any time, and there isn’t yet enough evidence across eight other bubble indicators to show stocks are in imminent danger.

The bigger picture: Everyone’s making deals but Atos. 

Atos’s shares had already been trending down since talks to buy US rival DXC Technology collapsed in February. Combined, the company could’ve become a cloud and consulting giant better able to compete with the likes of SAP and Accenture. Investors, however, thought it was too much for the deal-hungry company to take on. What may now be rubbing salt in Atos’s wounds is the fact that acquisition activity among other companies climbed to a two-decade high last quarter.

Originally posted as part of the Finimize daily email.

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