Auditing

Ain’t No Sunshine: SEC Probes Company

Nature's Sunshine Products blames KPMG's resignation for the company's failure to file financials in 2005 and 2006.
Stephen TaubJuly 16, 2007

With the company under investigation by the Securities and Exchange Commission and the U.S. Justice Department and an ongoing audit by the Internal Revenue Service, Nature’s Sunshine Products may be facing a gloomy forecast.

The SEC has started administrative proceedings against Nature’s Sunshine to suspend or revoke the registration of the company’s stock based on its failure to file required periodic reports.

The company also reported the SEC has subpoenaed certain documents and other materials related to the company’s previously-disclosed internal audit-committee probe. The DOJ has also requested the documents.

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Meanwhile, the Internal Revenue Service began auditing the company’s income tax returns in early 2006 covering income tax returns for the years 2002 through 2005, according to the Associated Press.

Nature’s Sunshine has not filed audited quarterly and annual reports for 2005 and 2006. It largely blamed the 2006 resignation of its auditor, KPMG, following the release of a preliminary report by the company’s audit committee, which had conducted an investigation into the company’s foreign operations and other matters related to its financials.

In October 2005, Nature’s Sunshine audit committee launched an investigation into some of the company’s foreign operations. The probe was late expanded to include other
matters related to the company’s financials. On March 15, 2006 the audit committee received a report on the findings of the independent investigation to that date. In response to that report and a series of later meetings involving KPMG, the audit committee, the special committee responsible for the report, and company directors, KPMG resigned as the company’s independent auditor on March 31, 2006.

The company, which currently trades on the Pink Sheets, has warned that investors shouldn’t rely on its quarterly reports for the first three fiscal quarters of 2005; its 2004 annual report; and quarterly reports for the first three fiscal quarters of 2004, 2003. and 2002.

Nature’s Sunshine said in an announcement late last week that it would file audited financial statements once the reviews are completed by Deloitte & Touche, its new independent accounting firm. However, it warned, it will likely be unable to do so for a number of months.

The SEC stated that a hearing will be scheduled before an administrative law judge aimed at finding whether the commission’s charges are true, providing Nature’s Sunshine a chance to respond
to the charges, and at finding out whether Nature’s Sunshine’s
registration should be suspended for a maximum of twelve
months or revoked.