Cash Flow

Bunge Finds a Sales Error: $7B Worth

Agribusiness company overstated its sales and cost of goods for 2007 through incorrect inter-company sales accounting.
Stephen TaubMarch 3, 2008

Bunge Ltd. said it overstated net sales and cost of goods sold in its unaudited 2007 financial reports by $7 billion, which will result in a gut-wrenching restatement.

Last month, the agribusiness and food company reported a total of $44.8 billion in net sales for the year. The corrected financial information, based on errors identified during its year-end closing process, will be included in Bunge’s 2007 annual report, the company said.

On Monday, Bunge said that the revisions would have no impact on previously reported volumes, gross profit, segment operating profit, net income, or earnings per share, or on the company’s consolidated balance sheets or statements of cash flows.

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It explained that the corrections resulted from its review of its accounting for, and financial statement presentation of, certain transactions primarily in its agribusiness segment. As a result of changes in certain systems in 2007, certain inter-company sales were classified as third-party transactions in both net sales and cost of goods sold and were not eliminated in the consolidation process, the company noted.

In addition, certain transactions related to Bunge’s trade structured finance activities were reported on a gross basis in net sales and cost of goods sold. These transactions should have been reported on a net basis, the company added.

Bunge also said it reviewed and conducted reconciliations for 2005 and 2006 of sales accounts in subsidiary general ledger systems with the company’s consolidation and financial reporting system.

It also reviewed trade structured finance transactions for 2005 and 2006 to assure appropriate accounting treatment and financial statement presentation.

As a result of these reviews, management said it has determined that the effect in 2006 and 2005 was immaterial.

“Bunge is remediating the control deficiencies that led to the need for these corrections, and which the company has determined constitute material weaknesses in its internal control over financial reporting in 2007,” it stated in a press release.

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