Tuesday, December 21, 2004
BearingPoint Warns on Controls; More problems for the former consulting arm of KPMG.
A month after the departure of its chief financial officer, BearingPoint Inc. said in a regulatory filing that it may be unable to complete all of the work necessary to present its report on internal controls required by Section 404 of the Sarbanes-Oxley Act or to conclude that its internal controls are effective.
BearingPoint added that while it expects to complete its evaluation and testing of its internal controls by the time it must file its 10-K for the year ending December 31 — due no later than March 16, 2005 — if "we have any material weakness, we will not be permitted to conclude that our internal controls are effective."
Even if the company had time to take remedial actions that corrected the material weakness by year-end, BearingPoint added, the remediated controls would probably not be in operation long enough to allow its auditor, PricewaterhouseCoopers, to conclude that they are effective. That makes it likely that PwC will provide either an adverse or disclaimed audit opinion, added the consultancy.
In October, BearingPoint announced in a government filing that PwC had identified "material weaknesses" in its internal controls. According to BearingPoint, in 2003 it acquired a series of consulting firms in 15 countries that "brought a variety of disparate accounting systems of varying quality, all of which had to be evaluated and integrated" into BearingPoint's systems.
BearingPoint also said that for fiscal years 2004 and 2005, it expects to pay fees to third parties totaling about $20.5 million and $12 million, respectively, to address Section 404 responsibilities. Since June 2003, added the consultancy, it has outsourced certain aspects of its internal audit function to Ernst & Young.
If BearingPoint is unable to meet the Section 404 deadline, the company warned, its ability to obtain additional financing "could be materially and adversely affected." Further, if it does not have audited financial statements by March 31, it will default under a 2004 credit facility, unless the delay is "solely as a result of continuing work by the company and/or its independent accounting firm to prepare opinions or statements required under Section 404," which will enable a 30-day extension.
posted by Brian Moran @ 11:19 AM