PracticeConsultingOnline extra – Andersen’s face Allied axe

Online extra - Andersen's face Allied axe

Arthur Andersen's future as auditor to retail giants is in doubt after its report into accounting irregularities. Nick Huber reports

Arthur Andersen’s future as auditor to Allied carpets is in doubt after the firm published its report into the retail giant’s awry accounting policy.

Allied?s heavily-criticised finance director David Pout left the retailer in the wake of its recent #3m accounting irregularities scandal with a #221,000 pay-off.

Allied ended an embarrassing month of speculation over its accounting policy last week after publishing the findings of a joint internal investigation with Andersens, confirming accounting irregularities of #3m in its preliminary results. A spokesman for Allied confirmed that Andersen?s future as auditor was under consideration after its findings.

Allied?s preliminary results, for the year ended 27 June 1998, show that early booking of sales, resulted in an exceptional charge of #3m on a turnover of #264m – up 3% from last year. Excluding this exceptional item operating profit was down 17% to #13m.

Allied, which includes Harris Carpets and Carpetland, said it first became aware of accounting irregularities on 6 July 1998, after Andersen raised the concerns of a whistle-blowing Allied employee.

The controversy stems from the ‘widespread practice’ of sales staff booking orders as sales before carpets had been delivered, against official company policy. DIY retailer Wickes and engineering group Powerscreen lost millions of pounds from similar breaches in internal controls over the last year.

A week after the problem arose, the Allied board requested the London Stock Exchange to suspend share dealings in the company. Last week both Allied’s finance director, David Pout and retail operations manager, Steve Barber resigned, both with hefty compensation.

The Andersen report judged the carpet group’s official accounting policy to be ‘prudent’, and said: ‘In almost all cases these goods had been fully paid for. This practice resulted in recognition of sales and profit earlier than group policy provides for but no loss of cash to the group.’

The report added that there had been no financial gain involved in the accounting irregularities.

The Allied board outlined four actions to be taken in the wake of the accounting irregularities.

These are a ‘strengthened financial director presence in operations?, the outsourcing of internal audit, a modification of management reporting and improved stocktaking procedures. Commenting on the general issues raised by the inquiry Neil Chisman, FD of Stakis, the hotel and casino chain, said: ‘Weak FDs struggle with charismatic chief executives and marketing directors. But our job is to be the boring conscience of a company. FDs can always alert the auditor if something is wrong.’

Allied Carpets was requoted on the Stock Exchange yesterday and saw its share price drop to 53p.

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