Last week, Overstock.com took the bizarre step of firing its accounting firm and filing a quarterly SEC document that had not been reviewed.
According to Overstock CEO Patrick Byrne, Overstock fired its accounting firm, Grant Thornton, for “changing its mind” about whether Overstock had to restate last year’s financial performance.
Well, that’s a load of bunk, Grant Thornton says, in an even more extraordinary SEC filing.
Grant Thornton also says Overstock is not coming clean about the source of the disagreement, which it says involves Overstock overstating its bottom line in Q1.
Grant Thornton sent a letter directly to the SEC:
Dear Sir or Madam:
Grant Thornton LLP (“Grant Thornton” “We” or our “Firm”) has read Item 4.01 of Form 8-K of Overstock.com, Inc. (“the Company”) dated November 16, 2009. We do not agree with statements concerning our Firm.
Grant Thornton did not issue an audit opinion on the Company’s financial statements. Grant Thornton, therefore, did not take a position as to whether the Company’s financial statements for the year ending December 31, 2008 should be restated. That determination must be made by the Company. Further, paragraph 4 references a report on the Company’s consolidated financial statements for the year ending December 31, 2009. As we have not performed an audit of the Company’s financial statements for any period, this reference is incorrect…
We disagree with the Company’s statement in paragraph 7 “that upon further consultation and review within the firm, Grant Thornton revised its earlier position” regarding the previously filed 2009 interim financial statements. This statement is not accurate. The Company brought the overpayment to a fulfillment partner to Grant Thornton’s attention in October. After additional discussions with the Company, the predecessor auditor and receipt of additional documentation from the Company we determined that the Company’s position as to the accounting treatment for the overpayment to a fulfillment partner was in error. Further the Company’s statement does not address the fact that the consultation noted in paragraph 5 was in relation to the ongoing incomplete review of the September 30, 2009 interim financial statements.
We have also read Item 4.02 of Form 8-K of Overstock.com, Inc. (“the Company”) dated November 16, 2009 and disagree with the statements concerning our Firm contained therein. During the course of our incomplete review of the Company’s September 30, 2009 financial statements, we advised the Company that disclosure should be made to prevent future reliance on its March 31, 2009 and June 30, 2009 financial statements. We advised the company to make the disclosure because we became aware that material modifications should be made to the previously filed 2009 interim financial statements [2009 Q1] to conform with US GAAP. Such modifications are necessary due to the Company having reduced its cost of goods sold in the first quarter of 2009 by receipt of a refund of an overpayment to a fulfillment partner. Further, the Company had additional items which we discussed that were still unresolved at the time we were dismissed, that could have a material impact on the first and second quarter financial statements for 2009. These items are identified by the Company in Paragraph 5 in item 4.01 of the Company’s Form 8-K.
Very truly yours,
Now, aside from the fact that this disagreement will turn the SEC heat on Overstock up several notches, there’s a very important detail in the letter above, which we’ve highlighted in red. It concerns Overstock’s filings for THIS YEAR. And it suggests Overstock may have overstated its performance in the first quarter.
We advised the company to make the disclosure because we became aware that material modifications should be made to the previously filed 2009 interim financial statements to conform with US GAAP. Such modifications are necessary due to the Company having reduced its cost of goods sold in the first quarter of 2009 by receipt of a refund of an overpayment to a fulfillment partner.
What that means is that Grant Thornton thinks Overstock reported a better bottom line in Q1 than it should have. Grant Thornton thinks Overstock should go back and restate that number. Overstock disagrees.
Overstock’s CEO Patrick Byrne described this disagreement in his letter explaining the Grant Thornton firing last week, but he did not say clearly that Overstock’s accounting treatment had boosted the company’s bottom line. Instead, he just vaguely discussed “recognising” the payment.
- In late Q1 2009, we received $785,000 relating to the partner overpayment discussed in point 1 above (even though the other issue with that partner remained unresolved). Thus, we recognised $785,000 in our 2009 Q1 Form 10-Q financials, which Grant Thornton reviewed as our auditors. In addition we highlighted $1.9 million (of which the $785,000 was a part) attributable to the collected overpayment, certain partner under-billing collections, and a freight carriers’ refund of overcharges in one-time, non-recurring income in that quarter’s earnings release, earnings conference call and Form 10-Q.
More heat for Overstock. More fuel for those who think the company is just a house of mirrors.