PracticeAccounting FirmsEDS could face junk status

EDS could face junk status

Electronic Data Systems may face a junk status credit rating for the second time after the company again postponed the release of its third-quarter results because of accounting problems with its US Navy contract.

Link: EDS postpones earnings release

Fitch, the ratings agency, put the troubled IT services group’s senior debt on watch for possible downgrade from BBB-, one notch above junk or sub-investment grade status, according to The Financial Times.

On Wednesday, EDS postponed for the second time the announcement of third-quarter earnings pending the outcome of negotiations with KPMG, its external auditor, about the value of assets related to its US Navy contract.

KPMG has also brought to the attention of EDS’ audit committee concerns over accounting relating to the company’s annual bonus scheme. The committee has since launched an investigation into its executive bonus scheme, which could further delay the announcement of its financial statements.

Fitch said a write-down would indicate ‘potential additional pressure on future cash flows’ from the Navy deal.

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