Ahold delays audit results as fraud deepens

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The financial scandal at Dutch retail group Ahold has deepened with
the company revealing that its Tops supermarket unit in the US had
also overstated profits in much the same way as the US Foodservice
subsidiary. All of which means a further delay in the audit of the
group's operations.

Royal Ahold​, the Dutch retail group which has been at the centre of fraud allegations for several months, has agreed to extend the deadline for the publication of the 2002 audited results for a number of its business units. It has also unearthed further evidence of accounting irregularities at another US unit.

The subsidiaries concerned are Stop & Shop in the US, which will now publish results on 30 June instead of 31 May, and Albert Heijn in the Netherlands, which will report on 2 June. As a result, the Ahold Group's accounts will be published on 15 August instead of 30 June.

In a statement, Ahold said that the delay in publishing the audited figures would not affect its agreed €2.65 billion credit facility already agreed with the banks, provided the new deadlines were met. It added that it did not expect to need to use the credit facility before 15 August in any case.

Completion of Ahold's internal accounting investigations is expected over the next two weeks, and the Dutch group confirmed that the audit of Stop & Shop's 2002 financial statements was "far along"​. However, delays have occurred in particular with regard to accounting implications of treating Stop & Shop on a standalone basis, and more time is therefore required to complete the audit.

The audit of Ahold's consolidated 2002 has been extended because of a number of new internal investigations at US Foodservice (the unit at the heart of the financial scandal) and other group subsidiaries begun by Ahold in the last few weeks. Deloitte & Touche, which is carrying out the audit, said that, while important progress had been made in these investigations, various delays in their completion had placed the resumption of important parts of the total audit some four to six weeks behind schedule.

"The auditors did not provide any indication of the expected timing for the completion of the audit of the 2002 financial statements, but did give assurances of their commitment to an effective audit process once the conditions for resumption have been met,"​ the Ahold statement continued.

Meanwhile, investigations have now been completed at 14 of Ahold's operating and joint venture companies, and yet more irregularities have been found.

"Based on the information received to date, intentional accounting irregularities involving earnings management and misapplications of generally accepted accounting principles were found, principally at the Tops Markets US subsidiary. The amount of these accounting irregularities is approximately $29 million (€24.5m), which will require adjustments to reduce Ahold's pre-tax earnings,"​ the company said.

"The investigations completed thus far have also preliminarily identified or confirmed various accounting issues and internal control weaknesses. Management is studying the findings to assess whether additional adjustments may be required to correct any accounting errors that may affect results of operations and to identify needed improvements in controls and procedures at the relevant companies."

These adjustments - if found to be necessary - will be in addition to those related to the accounting fraud at US Foodservice, at the South American unit Disco (where investigations are ongoing) and the decision by Ahold to consolidate its joint ventures on the equity method.

The separate internal investigation at Disco in Argentina is expected to be completed shortly. Ahold is currently discussing with its local auditor, Ernst & Young, issues with respect to the resumption of the audit at Disco.

Once all the investigations are completed, the company said it intended to review all findings with the audit committee to determine the necessary accounting adjustments. Ahold will also determine what steps must be taken to strengthen internal controls, to eliminate any improper accounting practices and to take whatever remedial actions are deemed necessary.

All of these irregularities make Ahold's position on the world retail stage increasingly precarious, with any number of potential buyers waiting to pounce on the increasingly ailing group.

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