Risk & Compliance

Cargo Company’s Records Lost in Transit

Atlas Air never created many accounting records in the first place, according to the SEC, while others disappeared when the company moved its headq...
Stephen TaubMarch 30, 2007

The Securities and Exchange Commission has announced that it has settled charges against Atlas Air Worldwide Holdings for violating financial reporting, recordkeeping, and internal-control provisions of the federal securities laws from 2000 through the second quarter of 2002.

Among the recordkeeping problems: when the air-cargo company transferred its main office from Colorado to New York, it didn’t properly track its accounting records to ensure that they all arrived and could be located in its new headquarters, according to the commission.

The SEC elaborated that in an October 2002 press release, Atlas disclosed material inaccuracies in previously reported results and announced that a restatement was required. The company also disclosed that its financial statements for the years ended December 31, 2000, and 2001 would be reaudited. “Those financial statements were materially inaccurate,” according to the SEC, because Atlas “understated the expenses it incurred during those periods for aircraft maintenance, excess and obsolete inventory, and doubtful accounts receivable,” as well as overstated the value of its aircraft fleet.

The commission also observed that Atlas was never able to issue restated financials for 2000, 2001, or any other prior period and that it lacked the accounting records needed to reaudit those periods or to identify the specific periods where adjustments were needed.

As a result of the cumulative adjustments to its financial statements, Atlas’s retained earnings as of December 31, 2001, decreased from the previously reported $185.1 million to an accumulated deficit of $180.2 million, a swing of $365 million. Adjustments were also required to correct previously reported results for the quarters ended March 31, 2002, and June 30, 2002, according to the commission.

The regulator cited three main reasons for Atlas’s failure to accurately report its financials for 2000, 2001, and the first two quarters of 2002 and to restate those results:

• Atlas never created many accounting records that it was required to maintain, while numerous other records were discarded or lost during the headquarters move from Colorado to New York.
• The company did not devise and implement an adequate system of internal accounting controls.
• Atlas did not account for an impairment of the value of its aircraft fleet or for expenses associated with aircraft maintenance, excess and obsolete inventory, and uncollectible accounts receivable in accordance with generally accepted accounting principles.

“The lack of key accounting records and controls made it impossible to determine, among other things, why certain journal entries were posted to the general ledger or even the identity of the person or persons responsible for making or directing such entries,” the SEC alleged. “Employees from outside the accounting department were permitted to make accounting entries without approval from senior management or the accounting department.”

Without admitting or denying the SEC allegations, Atlas agreed to cease and desist from further violations of the relevant securities laws. In accepting Atlas’s offer to settle, the SEC “considered remedial acts undertaken by Atlas and cooperation afforded the commission staff” but did not provide further details.