Overstock's dispute with former auditor heats up
Overstock.com's spat with its former auditor, Grant Thornton, is getting nastier, with each company accusing the other of being less than truthful about their disagreement over the online retailer's third-quarter financial statement.
"They are saying we are liars, and you know what, we're not," Overstock President Jonathan Johnson said Tuesday.
In a surprise move last week, Overstock filed an unreviewed financial statement for its third quarter ended Sept. 30 with the Securities and Exchange Commission after parting ways with its accounting firm.
At issue is a dispute that centers on how the company, which already was under investigation by the SEC for its past accounting practices, should have handled the financial reporting of a $785,000 overpayment to a business partner that occurred in 2008.
"Weighing all the facts and circumstances at the time, we decided it would be a mistake to book this overpayment as an asset as of December 31, 2008, deciding instead to recognize the sums as we recovered the money, that is, we thought the conservative position was the correct position," Overstock CEO Patrick Byrne said last week.
Byrne contended that Grant Thornton said it came to believe that Overstock should have recorded the $785,000 as an asset in 2008. As a result, Byrne said the accounting firm indicated it would be unable to complete its review of Overstock's quarterly financial statements unless the company restated its financial results.
Grant Thornton's position that the company should have booked the overpayment as an asset last year also called into question the company's financial statements for its first and second quarters this year.
Yet in a filing with the SEC last Friday, Grant Thornton said it "did not take a position as to whether the company's financial statements for the year ending Dec. 31, 2008, should be restated." It did, however, state that it "determined the company's position as to the accounting treatment for the overpayment ... was in error."
But Byrne, in a statement issued Tuesday evening, took issue with his former auditors.
"Grant Thornton recently told us that we needed to amend our [first quarter and second quarter of 2009 quarterly statements] to remove a $785,000 partner overpayment recovery from our [first quarter] financial statements," Bryne said. "Such amendments would have 'required' that we restate our 2008 [year-end statement]. After all, a recovery of a $785,000 partner overpayment can't just disappear from our financial statements. It has to go somewhere."
Johnson said the company believes its 2008 year-end financial statement was accurate and that its accounting firm at that time, PriceWaterhouseCooper, agreed and signed off.
"We're in the process of working out with the SEC whether we have to restate those financials [for 2008], or not," he said.
Johnson added that he was surprised at "just how inaccurate" Grant Thornton's letter was to the SEC, indicating its statements are proof that the decision by the company's audit committee to dismiss Grant Thornton was correct.
"None of these changes that they [Grant Thornton] are talking about, or that people at the SEC are now asking about, make any of our quarters go from negative to positive or from positive to negative," he said.
See more about comments here.