Tax

Kroger Restates Due to Tax Accounting

Supermarket giant is one of a growing number of companies being forced to admit that they've done their taxes wrong for years.
Stephen TaubMarch 6, 2006

Kroger Co. announced that it will restate its financials for the three fiscal years ended January 29, 2005, to adjust errors in its deferred tax account balances.

In a regulatory filing, the country’s largest supermarket company added that it will cut 2004 net earnings by $4 million and 2003 net earnings by $27 million. Kroger also noted that as of the beginning of fiscal year 2002, it will report a decrease in deferred income tax liabilities of $79 million, an increase in goodwill of $31 million, and an increase in shareowners’ equity of $110 million.

According to Kroger, the restatement stems from differences between the income tax basis and the financial reporting basis of certain assets and liabilities related to acquisitions and the related effect on recorded goodwill. Another problem area: differences between the income tax basis and the financial reporting basis of long-lived assets that were not reconciled to the deferred tax balances.

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The supermarket giant also noted that it had initially identified a “significant deficiency” regarding its deferred tax account balances while undergoing its assessment of internal controls in 2004.

Kroger is but the latest of a growing number of companies that have disclosed errors in their tax accounting.

At least 29 other companies have identified tax accounting mistakes this year, according to an analysis by AuditAnalytics.com conducted on behalf of USA Today. The newspaper also reported that 183 companies identified such errors in 2005, compared with 87 in 2004, 80 in 2003, and just 27 in 2002.

Mark Cheffers, chief executive officer of AuditAnalytics.com, reportedly attributed the surge of tax accounting errors to Sarbanes-Oxley, which is forcing companies to admit that they’ve done their taxes wrong for years. In the past, Cheffers added, companies simply tried to get the numbers within “a reasonable range of estimating.”

Lynn Turner, managing director at shareholder advisory firm Glass Lewis, told USA Today that since the Public Company Accounting Oversight Board has entered the picture, accounting firms as well as companies “can be publicly embarrassed if they don’t get things cleaned up.”

Indeed, last month H&R Block Inc. announced plans to restate earnings for fiscal years 2004 and 2005 and the first two quarters of fiscal 2006 because it underestimated its own tax bill by $31.7 million.

Other companies that recently identified tax accounting errors, according to USA Today, include Fortune Brands and Tyson Foods.

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