Arthur Andersen auditors have come under fire from the City after it emerged that IT recruitment company Corporate Services Group would have to write off provisions of #21m to its 1998 accounts, leaving the company with a forecast loss of #16.7m for the year.
Andersens auditors are said to be taking a ‘zero tolerance’ approach to CSG acquisition provisions, but the firm’s new rigour did not convince Merrill Lynch analyst Tim Steer, who said: ‘As the group expanded … more aggressive accounting policies were pursued.’
In 1996, the auditor allowed CSG to shift the accounting regime in its training division from cash to accruals. Such ‘aggressive’ accounting policies helped the company grow through acquisitions paid with share issues. But over #20m in loan notes and #4.8m in related goodwill will have to be written off in 1998, said Steer, since the auditors questioned whether the training division, which bought itself out of CSG in December, would be able to redeem the loan notes.
Steer labelled CSG managers’ accounting approach ‘naive’ and predicted they would not remain in position for much longer.
Finance director David Lake, who joined the company from Omnicom in December, said: ‘We are not commenting at this point.’
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