Executives at Overstock.com (NASDAQ:OSTK) announced last week that they’d be restating financial statements for 2003 through 2008. (And a few of those years were already restated once, so this makes it the third set of financial statements that will be issued for those years.)
David Chidester, Senior VP of Finance, explained it like this in his letter to shareholders:
As you know, during 2005 we implemented a major system upgrade which also upgraded our accounting system. As part of this accounting system upgrade we changed from recording refunds to customers in batches to recording them transaction-by-transaction. When we issue a customer refund, the refund reduces the amount of cash we receive from our credit card processors and, as a result, our financial system should reduce our accounts receivable balance. After the implementation, in the instance of some customer refunds, this reduction wasn’t happening, and we didn’t catch it.
Only at the train wreck Overstock.com could a botched 2005 accounting system implementation affect the 2003 financial statements. How on earth could an error caused by a new accounting system go back in time to affect the financial statements two years prior?
Unless of course, management is lying about the problem?
But what could the real explanation possibly be? 2003 and 2004 financial statements couldn’t be affected by a botched 2005 accounting system implementation. Yet 2003 and 2004 are being restated. What’s the real explanation for restating those years?