Accounting Observer > Public Blog - SEC Investigates IBC WC: In Deeper D-D?

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SEC Investigates IBC WC: In Deeper D-D?

Location: Blogs AAO Weblog (Public)
Posted by: Jack Ciesielski	1/28/2005 1:17 PM
In the past couple years, companies have been required to disclose the accounting policies that they consider to be most "critical" in terms of the effects they have on earnings or are most subject to a high degree of estimation. In surveying the S&P 500 the past couple of years, I've noticed one common policy/estimate termed critical by many companies: self-insurance estimates. In and of itself, that's not worrisome: investors should understand that it's a fact of life, a necessity in dealing with workmen's compensation liability, expected legal settlements and the like. The troubling aspect of it is that any discussion of these policy/estimates ends right there. No numbers, no further details available: sorry, nobody required us to do that. Last March 15, the Wall Street Journal ran a story on Goodyear's restatement of earnings from 1999 to 2003, due in part to an understatement of "workers' compensation claims accruals at a single U.S. plant." (If you want the story, you have to pay for it. Key in on the headline "Outside Audit: The Red Flag Called 'Self Insurance' Goodyear's Restatement Is Warning for Investors" by Theo Francis & Timothy Aeppel.) It now looks like Goodyear isn't the only company in a scrape over such accruals, according to the WSJ. Here's an excerpt from Interstate Bakeries' 8-K filed today: "Interstate Bakeries Corporation (OTC: IBCIQ.PK) today announced that the Securities and Exchange Commission (SEC) has issued a formal order of private investigation into issues that were the subject of a previously announced informal inquiry by the SEC. The formal investigation appears to concern matters related to a previously announced investigation by the Company's audit committee into the Company's manner for setting its workers' compensation reserves and other reserves." As you peruse the upcoming annual reports, it would be wise to keep your thinking sharp and critical when you're dealing with labor-intensive companies making workers' comp accruals. If a firm can't do more than mention them and other "self-insurance accruals" as mere boilerplate MD&A disclosures, are they really being forthright with their shareholders? And if they're not - what's going on in those accounts?

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