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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.

H&R Block Rethinks Income Taxes
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Posted by: Jack Ciesielski 6/9/2005 6:55 AM
Here's a strange one for you students of irony.

H&R Block, the income tax preparers, filed a non-reliance 8-K this morning, advising investors not to rely on their 2005 quarterly financial statements and financial statements for fiscal years 2004 and 2003. It's an amalgamation of errors that gave rise to the filing:

Erroneous acquisition accounting (mostly related to a 2000 acquisition) caused an understatement of deferred tax liabilities and goodwill of approximately $129 million - which overstated the income tax provision each year thereafter. The tax provision errors were about $11 million in each of years 2003 and 2004.

Erroneous gain-on-sale accounting calculations for securitizations in 2003 overstated revenues by $36 million that year. The correction will defer the gain into future years, putting about half in 2004.

Erroneous lease accounting for rent holidays and rent escalations, worth about $7 million in overstatement of retained earnings.

Income tax calculation errors, in the neighborhood of $10 to $14 million aftertax, related to internal control weaknesses over tax reporting that were identified in the 2004 10-K.

Erroneous calculations on the accrual of incentive compensation in 2004, resulting in an $12.4 million (pre-tax) understatement expense.

Erroneous capitalization of branch office costs in the Investment Services segment which understated pre-tax operating expenses by about $4 million in 2004 and $2 million in 2003.

Block will correct the errors as part of its filing of the April 30, 2005 10-K.

Jethro Bodine could spot the irony in this one: H&R Block making errors in its income tax reporting? It's like Starbucks forgetting how to make coffee, or GM forgetting how to make cars. Wait a minute...
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