In the year of 2004 there were many amended filings for financial restatements by publicly traded companies due to accounting errors, according to a report by Huron Consulting Group. The company I will be discussing is Ace Hardware Corporation which is not a publicly traded company headquartered in Oak Brook, Ill.
Throughout its 84-year history, Ace Hardware has been known as the "helpful place" by customers in the communities it serves. With 4,600 hardware, home center and building materials stores generating annual retail sales of more than $12 billion, Ace is the largest retailer-owned hardware cooperative in the industry. Ace currently operates 14 distribution centers in the U.S. and one warehouse in Shanghai, China.
Ace Hardware Corporation reported that it has successfully restated its previously issued financial statements for the fiscal years ended 2006, 2005 and 2004. The restatement was primarily the result of the discovery of a $154 million inventory accounting error by a mid-level employee in the finance department who worked there for eight years.
The restatement included the correction of the inventory accounting error which reduced 2006, 2005 and 2004 net earnings by $18.9 million, $19.3 million and $33.5 million, respectively. Additionally, the company also recorded other out of period adjustments and reclassifications in the restatement of its financial statements. Measures were taken to restore the company's equity, which included the establishment of variance allocation accounts for Ace's stockholders, its independent store owners.
According to Ace President and CEO Ray Griffith they anticipated having Ace's equity restored to previously reported levels within the next two years. They proved this by identifying the discrepancy when they conducted a full, third-party investigation that found no fraud, no missing money and no missing inventory, and issued audited restated financials within a six-month time frame.
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