In 1990 I joined UBS Phillips & Drew as Head of UK Company Research. This coincided with the beginning of the recession of 1990-92 in which several large and ostensibly profitable quoted companies went bust, such as Polly Peck and British & Commonwealth.
I gauged that the state of UK accounting which had allowed this to happen was about to become a hot topic and so in 1991 I co-authored a research report called "Accounting for Growth" with UBS's Transport analyst Richard Hannah. The title was a pun: had much of the vaunted earnings growth that companies and analysts focused on really been the result of accounting legerdemain? The report looked at various techniques which companies used to overstate their profits, or keep debt off their balance sheet, to report profits without any corresponding cash flow and to hide costs. It was voted the best piece of research published that year and I was then approached by the publisher Random House to ask if I would turn it into a book, which I did the following year.
I suspect we were on our way towards publishing a low volume accounting book when some of the companies whose accounts I had quoted from in the book complained to UBS who tried to stop publication of the book. I was duly fired, but nothing sells like a whiff of controversy and the book duly knocked Stephen Hawking's "Brief History of Time" off No. 1 in the non fiction charts and enlivened what would otherwise have been a dull August for the book trade.
The book seemed to mark something of a watershed and the newly formed Accounting Standards Board under Professor now Sir David Tweedie set about eliminating the more egregious abuses.
I was proud of the book as the years went by and the more blatant abusers generally failed or were exposed as some of the articles in the archives on the blog relate.
The best personal strives I had with regard the book were:
1) My mother knew nothing about it. But it was launched in Harrods book department and she happened to be shopping in Harrods with my sister that day. To say she was surprised when she came into the book department would be an understatement; and
2) the book is dedicated to my daughters-Katy and Emily. Emily was doing a degree in Business and Marketing and was in the book stacks at her university library when she spotted several copies of my book and said to a friend she was with that it was her dad's book. Her friend did not believe this, so she showed her the dedication 'For Katy and Emily'. Her friend remained unconvinced, after all Smith's a common name and she thought Emily just knew this author had a daughter called Emily. Emily gave up.
A second edition was published in 1996 but I have since resisted suggestions that I write another edition. Apart from the fact that the accounting system has been reformed, companies had moved onto to a new technique which is to publish whatever numbers they want in Press releases which are swallowed by gullible analysts who rarely seem to read a set of accounts any more. There was a brilliant article about this by Jeremy Clarkson (Yes-the motoring correspondent!) in the Sunday Times during the dot com boom about Pearson reporting of a profit if you ignored all the internet costs which had really caused a loss. But then I would probably rather have Jezzer doing investment research than the average analyst.
What they said about the first edition
UBS Phillips and Drew’s Suspended - Terry Smith puts Analysts to Shame
The Sunday Times on 20 August 1992
Smith preaches what Weinstock practises - UBS Phillips and Drew in row with Terry Smith over book
The Sunday Times on 16 August 1992
What they said about the second edition
The Lex Column: Mr Blobby’s returns
The Financial Times on 16 July 1996
Enlisting mother to figure it out - Interview - Terry Smith
The Times on 15 July 1996
Mr Blob is back with a vengeance
Daily Telegraph on 13 July 1996