Network Associates forced to restate accounts

In April, the network security provider disclosed the need to re-examine its accounts when it dropped its bid for an additional stake in its McAfee.com subsidiary. But The company would not say whether the end of the accounting investigation signalled the resumption of the deal.

With that investigation over, the company said the accounting inaccuracies in its 1999 and 2000 financial statements would not require it to change its previous tax payments for the years.

At the same time, a US Securities and Exchange Commission investigation regarding Network Associates accounts in 2000 continues and may be widened to look at these latest revelations.

Network Associates says it was continuing to help with the inquiry.

The problems with past filing stemmed, it said, from the way in which operating expenses had been accounted for over the period.

According to Brian Lolbeck, vice president corporate controller at Network Associates, one Network Associates employee had been the cause of almost all of the discrepancies.

The firm seems to have confused an accounting rules change that deals with how companies account for certain marketing expenses. Previously, these expenses were considered a marketing and sales cost, but they must now be treated as reductions in revenue.

During the investigation, Network Associates said they reviewed every bookkeeping entry over $1m from 1998 to the present and every incorrect entry by that individual.

The SEC could well look into that individual’s behaviour in an attempt to discover whether senior executives were aware of the errors and what steps were taken to correct them.

In detail, the new figures reduced net income for 1988 to $32.4m from $36.4m, cut the companies 1999 net loss for the year to $156.9m from a previously stated $159.9m. Finally in 2000, net loses have now been increased to $123.9m from $102.7m.

Network Associates is audited by PricewaterhouseCoopers.