When the going gets tough, the tough get litigious.

Amerco Inc., the parent of truck-rental company U-Haul International, is suing its former auditor, PricewaterhouseCoopers, for “negligent, fraudulent and tortious conduct” during the last seven years of PwC’s audit engagement. The complaint seeks actual and punitive damages in excess of—get ready for this—$2.5 billion.

The lawsuit alleges, inter alia, that Amerco sought PwC’s advice on how to properly account for a series of special-purpose entities (SPEs)—only to be told in February 2002 that the advice was wrong.

This purported bad advice set off a chain of events that undermined the financial market’s confidence in Amerco, the company’s management said in a statement.

Sour grapes? Maybe. But consider what Terri Hulse, PwC audit partner, reportedly stated to the Amerco audit committee: “[Amerco] asked the right questions,” she says in the claim. “We gave them the wrong answers. We can’t say it any other way.”

Separately, Amerco says it has received subpoenas for documents from the Securities and Exchange Commission. And last week, the company named a new CFO.

The lawsuit, filed late Friday afternoon in the U.S. District Court for the District of Arizona, claims that PwC’s advice over SAC Holding—an Amerco special-interest entity—was the start of a series of events triggered by the auditor that resulted in the need for Amerco to restructure its balance sheet and obtain more than $850 million in new financing. The company also claims that PwC kept it from properly disclosing what had gone wrong and how.

The SAC entities were used to acquire land for the construction of self-storage facilities. The suit claims that in December 2001 (just months after the Enron scandal broke), consultants at PwC realized that the SPEs would have to be consolidated. But Amerco contends the accounting firm did not make Amerco management aware of the problem until February 2002, on the eve of an SEC filing.

PwC, however, objects to the allegations. “The primary responsibility for the accuracy of financial statements lies with the company,” PwC spokesman David Nestor told Reuters. “This action appears to be an attempt by company management to shift the blame away from themselves.”

Speaking of that management: On Friday, Amerco named Andrew Stevens as its new finance chief, overseeing all areas of financial management, from financial accounting to capital markets. Previously Stevens was vice president of finance and controller of specialty retailer CSK Auto Corp. He succeeds treasurer Gary Horton, who earlier in the week announced that he would retire, effective August 1.

FASB’s Herz Sides with U.K. Pension-Accounting Rule

Despite Royal Ahold’s massive accounting scandal, U.S. accounting standard setters still look across the pond for answers—particularly when it comes to pensions.

Consider the comments of Robert Herz, chairman of the Financial Accounting Standards Board, who told the Financial Times that he wanted the United States to adopt the U.K. approach to pension bookkeeping. His comments come in the wake of the International Accounting Standards Board’s (IASB) own plans this year to produce a pension-accounting standard based on the U.K. rule, known as FRS 17.

Herz strongly criticized existing U.S. pension accounting because it could produce misleading figures in companies’ earnings statements, the FT noted. This is because U.S. pensions accounting, like the international rule, allows gains and losses on assets to be spread over a period of years and then recorded in the income statement.

The current standard has allowed U.S. companies to inflate profits during the bear market with gains on their pension assets from years past. Last week the New York Times reported that later this year, regulators will audit the financial statements of any company that exceeds a 9 percent proposed standard for the effect of pension-fund assumptions on a business’s bottom line. If a company’s finance team can’t convince the auditors that the investment return assumption is legitimate, the company will be forced to restate earnings.

The IASB plan would, like FRS 17, abolish the spread option in favor of immediate recognition of gains and losses. The gains and losses would be recorded in a new statement of comprehensive income rather than put through the profit and loss account. “I think that is the cleanest way to do it,” Herz told the paper. “We have a model right now where it is very hard to figure out what is done.”

Still, FRS 17 is not without its detractors. Critics blame the U.K. rule for the closure of the salary-pension schemes of several companies. How’s that? Apparently, following sharp declines in stock markets, the accounting treatment exposes big deficits in pension funds.

In other pensions news: Xerox Corp. announced that it expects to include an after-tax litigation charge of $183 million in its first-quarter results to cover payments it may have to fork over to former employees. Those ex-workers have brought a case against the company’s primary U.S. pension plan. Xerox also noted that, despite this new information, it expects to exceed earnings estimates when it reports its quarterly results on Wednesday.

An Illinois court ordered Xerox’s pension plan, The Retirement Income Guarantee Plan, to pay almost $300 million, on a pretax basis, to the retirees. The company has appealed the ruling. But under current U.S. accounting standards, Xerox is required to earmark funds for possible payment.

Airborne Deal Not Grounded by Federal Law

Airborne Inc. said the proposed $1 billion takeover of its ground operations by Deutsche Post AG’s DHL Worldwide Express subsidiary will happen even if the German delivery company is found to be improperly in control of two U.S. airlines. This according to Monday’s Wall Street Journal.

Specifically, federal law requires U.S. airlines to be controlled by U.S. citizens. Foreign ownership of any domestic airline is capped at 25 percent. To sidestep that legal issue, the DHL deal calls for Airborne to be split: Airborne’s ground-based delivery network would be acquired by DHL Worldwide Express and then folded into current DHL ground operations in the United States.

Successful acquisition of Airborne would give Deutsche Post, the German national postal system that is now a publicly traded company, its first major foothold in the U.S. market. Still, despite Airborne’s optimism, the deal still has some heavyweights that oppose it; namely, FedEx Corp. and United Parcel Service Inc.

S&P Says AMR Corp. Ratings May Still Be Cut

So much for getting back to business as usual.

Standard & Poor’s indicated on Monday that it may still cut its ratings on AMR Corp. and its American Airlines Inc. unit. The reason for the possible lowering? The controversy over American’s executive pay packages, which could ground the company’s turnaround plan.

The executive pay involves special pension funding that would be paid even if American lands in Chapter 11. The plans were disclosed in a federal filing just as workers agreed to deals that would slash pay for most groups by 15 percent to 23 percent and bring thousands of layoffs.

“Disclosure last week of retention bonuses and the creation and funding of a bankruptcy-remote supplemental pension plan trust for AMR and American executives continues to anger employees, who last week narrowly approved deep cuts in their compensation,” says S&P in a Reuters story.

AMR has been struggling to win wage concessions that would save an estimated $1.8 billion a year in labor costs and help the debt-laden carrier avert a bankruptcy filing. But even if labor concessions remain in place, S&P said, “the controversy appears to have seriously damaged labor relations at a time when the airline is struggling to avoid bankruptcy.”

Although American’s management has canceled retention bonuses and promised not to make further investments in the supplemental pension plans, the flight attendants’ union is threatening to hold another vote on wage concessions, which would almost certainly reverse the previous narrow approval, said S&P.

Reuters also reported that American Airlines is meeting with its three major unions on Monday. S&P currently rates American and AMR Corp. “CCC,” four steps above default.

Did HealthSouth’s Settlement Offer Come Up Short?

Silence can be a costly proposition—just ask executives at HealthSouth Corp.

Shortly before allegations of its accounting fraud blasted the company, HealthSouth offered to pay as much as $150 million to settle separate Medicare-fraud allegations, but the government didn’t accept the offer. This, according to the Wall Street Journal, citing people familiar with the matter. Why? The Justice Department passed in part because the agency wanted at least $200 million to resolve the civil charges.

As part of the $150 million settlement offer, HealthSouth wouldn’t have admitted to any wrongdoing, the paper said.

In March the SEC charged HealthSouth and its former chairman and chief executive, Richard Scrushy, with overstating profits by at least $1.4 billion since 1999. Another former executive has testified that HealthSouth inflated earnings by an additional $1.1 billion in 1997 and 1998.

Eight former HealthSouth executives have pleaded guilty to criminal fraud charges in connection with the alleged accounting scheme.