In 2004, there were numerous amended filings for financial restatements caused by accounting errors among publicly traded companies, as stated in a report by Huron Consulting Group. One particular company I will focus on is Ace Hardware Corporation, which is not a publicly traded company and is based in Oak Brook, Ill. For over 84 years, Ace Hardware has earned a reputation as the “helpful place” among customers in the communities it serves. With an impressive network of 4,600 hardware, home center, and building materials stores, Ace generates over $12 billion in annual retail sales. It is worth noting that Ace stands as the largest retailer-owned hardware cooperative in the industry.
Ace currently operates 14 distribution centers in the U. S. and one warehouse in Shanghai, China. Ace Hardware Corporation has successfully restated its previous financial statements for the fiscal years 2006, 2005, and 2004. The restatement resulted from a $154 million inventory accounting error discovered by a mid-level employee in the finance department with eight years of experience. The restatement corrected the inventory accounting error, reducing net earnings for 2006, 2005, and 2004 by $18. million, $19. 3 million, and $33. 5 million respectively. The company also made other out of period adjustments and reclassifications in its financial statement restatement. To restore the company’s equity, variance allocation accounts were established for Ace’s stockholders, independent store owners. Ace President and CEO Ray Griffith expects Ace’s equity to be restored to previously reported levels within the next two years.
A thorough investigation by an independent party discovered a discrepancy and determined that there was no evidence of fraud, missing money, or missing inventory. Restated financial statements were issued within six months after the investigation. The impact of these restatements on net income and equity for the years 2006, 2005, and 2004 is summarized below. For the year ending December 29, 2007, Ace Hardware Corporation reported wholesale revenues of $3.97 billion, reflecting a $39.4 million (1.0 percent) increase compared to the $3.3 billion in wholesale revenues from the same period in 2006.
Ace, the largest retailer-owned cooperative in the home improvement industry, has achieved positive revenue growth for the sixth consecutive year. This growth can be attributed to several factors, such as the addition of 171 new stores worldwide in 2007. Additionally, international revenues have significantly increased by $24.1 million or 14.4 percent. Currently, Ace operates stores in all 50 states and 63 countries. However, despite this overall revenue growth, Ace’s net income for the full year of 2007 decreased to $86.9 million from the record net income of $94 million generated in 2006.
The decrease in net income in 2007 was a result of lower gross profit rates. This was because of one-time gains achieved in 2006 on commodity pricing and opening stock order discounts connected to the launch of a new distribution center, as well as increased expenses to support new retail initiatives and the cost of the 2006 financial restatement. Retailers received patronage dividends worth $81.2 million at the end of 2007. It is evident that they made a comeback in this market after restating their financials.
They acquired the skills to make tough choices and operate more efficiently in order to navigate this economy.
Bibliography
- WEBCPA, . (2007, September 10). Ace Hardware finds 154M accounting error. WEBCPA.
- Taub, Stephen. (2008, December 4). Ace signs a Mr. Fixit to work with its CFO. CFO. com. (2008, April 23).
- Ace Hardware Reports 2007 Financial Results. Franchising . com. Retrieved from(2008, March 4).
- Ace Hardware Announces Restated Financial Results For 2004 – 2006. Franchising. com.
