Accounting & Tax

New Errors at New Century

Already in liquidation proceedings, the subprime lender announces more accounting errors, which it says probably led to a material overstatement of...
Stephen TaubMay 25, 2007

New Century Financial has disclosed errors in its financial statements for the fiscal year ended December 31, 2005, related to the accounting and reporting of loan repurchase losses and the company’s valuation of certain residual interests in securitizations.

In a regulatory filing, the bankrupt subprime lender elaborated that more likely than not, these errors resulted in a “material overstatement” of pretax earnings in 2005. Since the company is in liquidation proceedings, however, it does not expect to complete a restatement of either its annual or quarterly reports for that year.

In February New Century announced a restatement after uncovering similar errors in its financials for the first three quarters of 2006. The company subsequently opened an investigation into the issues causing the restatement. The following month, New Century disclosed that it is the subject of investigations by the Securities and Exchange Commission and the U.S. Attorney’s Office for the Central District of California.

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Paul Kranhold, an outside spokesman for New Century, told Reuters: “We continue to work cooperatively with the SEC and the Justice Department.”

Earlier this month, a bankruptcy judge declined to replace top executives at New Century with a trustee but approved the appointment of an examiner to investigate its accounting practices.

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