Accounting Observer > Public Blog - Longview Fibre's "Oops"

The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis. All posts prior to September, 2007 are in the public domain, but after September 4, 2007, only subscribers to The Analyst's Accounting Observer will see all posts going forward. Only selected, occasional posts will be released to the public domain from September 4 forward.

Longview Fibre's "Oops"

Location: Blogs AAO Weblog (Public)
Posted by: Jack Ciesielski	5/26/2005 6:18 AM
Another day, another inventory goof... A couple days ago, I mentioned the Maxtor slip-up on its inventory reporting in the first quarter. I made the case that it wouldn't be surprising to see more goofs along the lines of Maxtor's. But I didn't expect to see one quite so similar and quite so soon. Yesterday afternoon, Longview Fibre Company filed an 8-K for its second quarter earnings - and simultaneously filed another non-reliance 8-K in which the firm advised investors not to rely on its first quarter figures due to an error in figuring its LIFO inventory valuation. It'll be filing an amended 10-Q soon. LIFO inventory calculations are painful exercises involving indexes that are often internally-constructed by firms; the indexes are applied to layers of purchases to arrive at a LIFO value. In Longview's slip-up, an index from last year was mistakenly used in the current year calculation. Longview and its auditors consider the error to be evidence of a material weakness in internal controls. Such restatements and discoveries are likely to be more commonplace, as I mentioned in the Maxtor posting. Investors need to develop an understanding of just what contributes to such errors and material weaknesses. The kinds of errors we've seen in these two instances occurrred in what might be considered isolated, occasional processes - ones that are performed only at say, quarter end and involving a lot of manual calculation and input. They're not at all like constantly recurring processes requiring good internal controls - say like, recognizing cash sales at a retail outlet. Because they happen only occasionally, and involve complex issues, it's more likely that human errors could affect these transactions. Another example of transactions like these: income tax calculations. While errors in these kinds of recordations aren't necessarily forgiveable, they're not reasons for investor panic attacks either.

Permalink \| Trackback