Cogentrix Energy Inc., an electricity generation company acquired last fall by Goldman Sachs, announced that it will restate results for several years. The restatements will reflect a change to straight-line revenue recognition in the company’s accounting treatment for two long-term power contracts.
The Charlotte, North Carolina-based company added that it has asked its new independent auditor, PricewaterhouseCoopers, to re-audit its 2001 and 2002 financial statements.
As a result, the company will delay the filing of its annual report for the fiscal year ended 2003 as well as its quarterly reports for the first two quarters of fiscal 2004.
Cogentrix stated that the accounting change will increase revenue and net income for 2003 but reduce revenue and earnings for 2002 and prior years. The changes will not affect past or future cash flows, added the company.
On March 11, when Cogentrix warned of a possible restatement, the company said that it had been recognizing revenue under the contracts when billed, based on accounting rules that applied when the contracts were entered into. Those rules were revised in 1992 to require that certain revenues be recognized on a straight-line basis over the term of the contract.
The new rules contained a grandfather provision for contracts entered into prior to May 1992. When Cogentrix amended the contracts in 1997 and 1998, the company determined that the grandfather provision continued to apply.
PricewaterhouseCoopers, however, advised Cogentrix to adopt the straight-line revenue method for its 2003 and prior statements. According to the Charlotte Business Journal, “the restatements could go back to 1997.”