Accounting & Tax

CSK Uncovers Accounting Errors

Former CFO, other executives, leave company after $90 million in overstatements are found.
Stephen TaubSeptember 28, 2006

Auto parts retailer CSK Auto Corp. announced that it will restate its financials for the past five years after an internal investigation uncovered accounting errors and irregularities. The company also said that president and chief operating officer Martin Fraser and chief administrative officer and former chief financial officer Don Watson, as well as several other individuals in its finance organization “are no longer employed by the company.”

In addition, the company said Maynard Jenkins, chairman and chief executive officer, will leave the company once it completes a search. Pending completion of that search, Jenkins will assume the responsibilities previously held by the president and Chief Operating Officer. “I am extremely disappointed by the results of the investigation, and I will work with the [b]oard to implement the policies and procedures to assure that the issues identified by the investigation do not recur,” said Jenkins, in a statement.

The company said it intends to implement remedial measures, including enhanced accounting policies, internal controls, and employee training. The accounting issues affected various inventory accounts, vendor allowances, other accrual accounts, and related expense accounts, CSK said in its press release. The company also noted that its audit committee “has substantially completed” the internal investigation, which had begun in March. The probe focused primarily on the company’s accounting for inventory and vendor allowances associated with its merchandising programs, but was “not limited in any way.”

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

CSK elaborated that it is currently in the process of finalizing work to restate its financial results for 2003 and 2004, selected consolidated financial data for each of the four fiscal years from 2001 through 2004, and interim financial information for each of its quarters in fiscal year 2004 and for the first three quarters of fiscal 2005.

Based on preliminary results of its investigation, the company estimates that a maximum of $70 million in inventory, and $12 million in vendor allowances, were overstated relative to its October 31, 2005 balance sheet. It also identified estimated overstatements of between $3 million and $7 million of store surplus fixtures and supplies.

In addition, the company noted that it expects to identify additional material weaknesses in its internal control over financial reporting associated related to the new accounting issues.