SSL auditor inflated corporate profits

ERJ staff report (DS)

London -- Auditors of the condom manufacturer SSL have been fined for incorrectly over-stating SSL's sales and profits around 10 years ago. The auditor, Arthur Andersen has since gone into liquidation.

A Joint Disciplinary Tribunal has fined AA £75 000 (Euro 80 000) for the breach of regulations and ordered the company to pay costs of £100 000 (Euro 108 000).

An investigation disclosed that in some of the sales claimed by SSL (or SSH), ownership had not passed to the customer, and thus the sales were wrongly included in the reporting period concerned. In 1999, on turnover of £631 million, £17.1 million of sales were wrongly included; and in 2000, £4.8 million of sales were wrongly included. In both years shareholders' funds were overstated as were profits (in 2000 a loss was understated).

The criticism of Arthur Andersen is that it failed to plan its audits properly so as to take account of this risk; and in carrying out the audit of debtors (ie the amounts apparently owed to SSL (or SSH) by customers), it did not obtain enough evidence to enable it to draw the conclusions which it did in its audit opinion that the financial statements of SSL (or SSH) gave a true and fair view.

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Press release from JDS