“Nortel Networks Corp. said the focus of its investigation into its accounting problems is turning to the second half of last year, leaving open the possibility of further restatements beyond the 50% cut in reported 2003 net income the telecommunications-equipment maker expects,” writes Mark Heinzl in today’s Wall Street Journal.

“Nortel in March determined it would need to restate its earnings for a second time, because of a continuing investigation of its original restatement last fall. Then in late April Nortel fired its Chief Executive Officer and two other top officials and said its reported 2003 profit of $732 million would be cut in half. Nortel said the investigation is centered on “management’s practices regarding accruals and provisions,” or noncash accounting entries.”

“Some analysts believe Nortel’s ‘Return to Profitability’ bonus program may have helped to tempt senior finance officials to make accounting moves that helped Nortel show a profit in early 2003.”

” ‘The detailed review is now under way with respect to the third and fourth quarters of 2003,’ Nortel said yesterday.

“Washington lawyer William McLucas is conducting the review for the audit committee of Nortel’s board of directors.”

“In an interview, recently appointed Nortel President and Chief Executive Officer William Owens said it is ‘indeed possible that the second half could be open to restatement,’ but much work remains to be done to determine the full impact the restatement will have on reported results for 2003. ‘We just want to do this in a way that we don’t have to redo it again. We just want to have the most credible numbers we can possibly have,’ Mr. Owens said.”

“Nortel had reported a substantial profit for the second half of last year, including a blowout fourth quarter showing net income of $499 million on revenue of $2.83 billion. Nortel continued to insist yesterday that its restatement won’t have a “material” effect on past reported revenue or on the company’s cash position, which it said was $3.6 billion as of March 31.”

“Nortel also said the complexity of its investigation and restatements, which will also affect reported results for 2002 and 2001, means they won’t be completed by the end of this quarter, and it’s not clear when they will be finished.”