They Fired Two Auditing Firms. Who Wants to Be No. 3?

Help Wanted: Auditing Firm. Must be willing to work cheap and go along with accounting policies that the previous auditors did not like.

The SureBeam Corporation, a San Diego company that has a technology for irradiating food to make it safer, essentially put out that ad yesterday. It will be interesting to see who gets the position — or whether anyone wants it.

SureBeam said yesterday that it had fired Deloitte & Touche after Deloitte said it did not like the company's accounting “for certain transactions beginning in 2000.”

This company may win the prize for shortest interval between auditor firings. On June 9, it fired KPMG, which had lasted 14 months after being hired to replace Arthur Andersen, which was then in the process of disintegrating.

The KPMG firing, said Mark Stephenson, SureBeam's vice president for corporate communications, had nothing to do with accounting policies. SureBeam thought KPMG charged too much. It paid KPMG $342,000 for last year's audit, up from $239,205 in Andersen's final year.

One reason such quick divorces are rare is that companies looking for auditors go over their accounting policies with the new firm before it is hired. Indeed, John C. Arme, SureBeam's chief executive, said in an interview last night that he had asked Deloitte “to be very careful in reviewing everything” before it signed on. “My request was to read the footnotes very carefully.”

What appears to have happened is that the Deloitte partner who won the account — and who, Mr. Stephenson said, agreed to work for less — became ill. His successor had problems with the way the company recognized revenue on a 2000 contract. Deloitte declined to comment.

SureBeam uses a form of accounting called percentage of completion. Under it, the company estimates how much of a contract it has completed and how much completing the rest will cost. If a contract is half completed, and the company figures it will make $2 million on it, it records a $1 million profit. It can even report profits without having sent out bills. There is plenty of room for error in such estimates, of course. If costs turn out to be higher than expected, previously recorded profits can vanish.

“Accounting is not a science,” said Mr. Arme, a former partner at Arthur Andersen. “It is an art. Accordingly, you will get different accountants with different pictures.”

Just which picture Deloitte did not like is unclear. “They said they could not come to a conclusion as to whether accounting for that contract was proper,” Mr. Arme said. He would not identify the contract in question.

What is clear is that a restatement going back to 2000 would question the work of Andersen and KPMG and could create problems for the Titan Corporation, a military contractor that owned SureBeam before it went public in 2001. Shares sold to the public then for $10 now fetch $1.81.

Mr. Arme conceded that finding a new auditor might be difficult. “In the time I was in the profession, from 1957 to 1992, the entire atmosphere was so different,” he said, speaking of the question of taking on a troubled company as a client. “You were making the decision based more on professional judgment rather than on fear of being sued.”

SureBeam has plenty of problems without this one. In June, Mr. Arme vowed to cut costs while also increasing revenue. Now, he said, “There has to be some hesitation from customers waiting to see if there will be significant repercussions from this.”

It is refreshing to see an auditor walk away rather than sign off on old accounting it doubts. But no one argued that such vigilance would be painless for those involved.

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