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Accountants questioned for questioning accounting

Here's something you haven't heard much of: accountants getting fired for just doing their job. That's right, getting shown the door for asking too many questions, digging too deep into the financial statements and reviewing past practices.

Isn't that what they were supposed to do in the wake of all the business scandals?

Accountants have gotten lots of criticism in the last year for not probing enough, but it seems not every corporate client is ready for that to change.

At least this appears to be what happened when SureBeam Corp. dismissed Deloitte & Touche after the auditor questioned the company's method of recognizing revenues in two different transactions.

The termination last week came less than three months after Deloitte started working for SureBeam, a San Diego company that produces technology to irradiate food to make it safer.

Deloitte had replaced KPMG, which had been fired in June for raising its fees too much. In April 2002, KPMG replaced Arthur Andersen, which collapsed because of its role in the Enron scandal.

According to SureBeam's filing with the Securities and Exchange Commission on Tuesday, Deloitte's auditors were concerned with whether SureBeam had followed generally accepted accounting principles with its sale of equipment to a Brazilian company in 2000.

With that deal, Deloitte questioned SureBeam's use of an accounting methodology called percentage of completion, which lets companies recognize revenues on their books based on their progress in completing work on a contract.

According to a report in The New York Times, which SureBeam spokesman Mark Stephenson wouldn't confirm, the company recognized millions in revenue from the Brazilian deal that was ultimately not recovered.

Deloitte also questioned how SureBeam recognized revenues and profits from its sale of equipment to Texas A&M University, which is not paying for the equipment but is instead performing research for the company.

With those kind of concerns, Deloitte refused to sign off on SureBeam's second-quarter earnings report until it got more information on the transactions.

New auditors have the obligation to review financial statements thoroughly, which means not just considering current accounting but also how numbers were crunched in the past. And there is pressure on them to do that now more than ever, especially after all the scandals increased their liability.

“You can't just accept what someone else signed off on and still be able to give a clean opinion of the financials. That's not how to audit,” said Frederic M. Stiner, professor of accounting, taxation and law at the Brooklyn campus of Long Island University.

But SureBeam still thought Deloitte had to go.

In its SEC filing and a news release, the company noted that its previous auditors had vouched for its accounting principles or practices and the SEC had also reviewed its financial statements.

“We do not want questions about prior accounting decisions to continually affect SureBeam's ability to grow,” SureBeam chairman and chief executive John Arne said in a statement.

The good news is that SureBeam didn't just fire Deloitte and let its concerns fall to the wayside. In fact, its board of directors wants these issues resolved and is interviewing national accounting firms to conduct an independent review.

“Just because the last firm questioned our practices, is that what we were supposed to follow?” Stephenson said. “The board's view is that we just can't lay down here. We need to get a new firm in here to review Deloitte's point of view.”

But then what will SureBeam do? It will have to weigh which accountants to listen to, the old or the new. The decision could surely effect its bottom line.

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