IPG to Restate 2000-04 Earnings

NEW YORK Interpublic Group today said it would restate earnings for 2000-04, due to problems in accounting for revenue, acquisitions and lease expenses.

In a filing with the Securities and Exchange Commission, IPG attributed the errors mainly to weak financial controls and a decentralized operational structure, which it had flagged in previous filings.

The SEC has been investigating IPG’s accounting practices since early 2003 and continues to do so.

IPG further said that in the context of its review, “certain items came to our attention that required investigations into employee misconduct,” primarily at agencies outside the United States. The accounting errors attributable to such misconduct resulted from falsifying books and records; the violation of laws, regulations and company policies; the misappropriation of assets; and “inappropriate” customer charges and dealings with vendors, according to IPG.

Those investigations, which are nearly complete, contributed to the restatement and led to the development of remediation plans, IPG said. “In all cases, culpable employees have been terminated or are in the process of being terminated or are otherwise no longer with the company,” IPG added.

Though IPG did not reveal the size of the restatement, it said it affects “most of the accounts in our financial statements” and will have a “material” impact on its previously reported results. As such, IPG said, “investors should not rely on any prior disclosures concerning the nature and amount of the restatement because, as we indicated could occur, the scope of our review has expanded and the magnitude of the restatement has been increased substantially from what we contemplated when we began.”

“Instances in which we believe there was malfeasance represent a small number of our locations,” said an IPG representative. “The fact we have been able to identify them demonstrates that we are making progress in enhancing our risk management controls.”

The No. 3 agency holding company is expected to quantify the restatement when it reports long-overdue results for 2004 and the first two quarters of 2005. IPG said it “remains on track” to report those numbers by Sept. 30 “barring any unforeseen circumstances.” IPG must meet that deadline or default on the terms of certain bank loans and potentially be delisted from the New York Stock Exchange.

In a statement, IPG CEO Michael Roth said, “I have been clear since assuming my current responsibilities that our top priority is to fix our financial controls and leave accounting issues behind us. The comprehensive review of our financial results and processes that we have undertaken is consistent with this objective.”

In IPG’s filing, the company explained that its revenue accounting problems stemmed from lacking uniform procedures for reviewing contracts with clients around the world. IPG said its acquisition accounting issues were the result of consolidating revenue and expenses of the acquired companies from a date earlier than the effective dates of acquisition.

As for its lease accounting discrepancies, IPG said it failed to properly record or amortize landlord/tenant incentives or leasehold improvements as well as rent holidays and related asset retirement obligations.