Restatement of Huron Consulting Group, Inc. : The Effect on Financial Statement and the Affect on Stockholders Abstract Huron Consulting Group, Inc. provides business consulting services in diverse industries in regard to improving performance, complying with complex regulations, resolving disputes, recovering from distress, leveraging technology, and stimulating growth.
On July 31, 2009, the Company made the announcement that it will restate its financial statements for the fiscal years 2006, 2007 and 2008 and the first quarter of 2009 due to the accounting of acquisition related payments discovered by the audit committee of the board of directors. Huron Consulting Group, Inc. through the acquisition of additional businesses involving accounting principals produced errors on their financial statements affecting not only the company but also the stockholders. Restatement of the Company
Huron’s restatement is a result from “accounting related to four specific business acquisitions where (the) payments received by sellers were ‘subsequently redistributed among themselves and to other select Huron employees’” (Whitehouse, 2009). More specifically, Huron acquired four companies between 2005 and 2007. As part of the price paid, several former executives of the purchased firms, reallocated the “earn outs” or payments received over time “contingent upon achieving certain performance targets” among themselves and other employee(s) at Huron (Huron Press Release, 2009).
Accounting Principals Involved The principals involved in the actions leading up to the restatement are Gary E. Holdren, Gary L. Burge, and Wayne Lipski. Gary Holdren, CEO and chairman, started working with Huron in May 2002 as president of one of Huron Consulting group’s subsidiaries. Holdren holds a bachelors degree from Miami University, and a CPA license. He was a partner and midwest director of global client services at Arthur Andersen LLP from 1991 through 1998. Holdren has extensive experience with corporate financial consulting. Gary L.
Burge began his tenure at Huron Consulting Group LLC in November 2002 as chief financial officer and treasurer. He began his career at Deloitte & Touche LLP and has worked with several high profile companies before assuming the position at Huron in 2002. He holds a bachelors degree in accounting from Northern Illinois University. Wayne Lipski, CPA, is a graduate of Loyola University of Chicago. He began his career as an auditor with Arthur Andersen. He began working for one of the subsidiaries of Huron Consulting Group in October 2003 as Controller.
He became assistant treasurer and controller of Huron Consulting Group in May 2004. Lipski’s duties at Huron include external financial reporting, GAAP accounting, revenue recognition, internal financial statements, acquisition accounting, internal controls, and oversee internal and external audits. Effect of Errors and Changes on Financial Statements Under GAAP and other rules governed by the Securities and Exchange Commission (SEC), “actions of economic interest holders in the company can be imputed to the company itself” (Huron Press Release, 2009).
In short, the actions of the employees receiving the “earn-out” payments and redistributing them to another turned the redistribution into compensation paid by the company, and hence, a material change in the reporting of expenses, with a corresponding impact of a reduction of $56 million to net income and EBITDA. The newly classified payments need to be accounted for as non-cash compensation expense of the Company with “corresponding increase to additional paid-in capital. ”(Huron Press Release, 2009).
This restatement however, did not affect Huron’s cash flow from operations, or affect the assets, liabilities or stockholder’s equity accounts. Affect on Stockholders Stockholders took a significant hit from the events relating to the restatement with earnings per share dropping an estimated average of 42% over the restatement period. The price of the company’s stock also fell. Prior to the discovery, Huron’s stock had reached an artificially inflated price of $83. 25 per share and fell to a low of $13. 9 per share after the restatement announcement, the unrelated SEC inquiry and the resignation of the company’s CEO, CFO, and CAO. The stock’s decline in value relating to these events triggered other issues and pending liabilities for the company. Persons who purchased or otherwise acquired the common stock of Huron between April 27, 2006 and July 31, 2009, filed a class action lawsuit against Huron and certain officers for violations of the Securities Exchange Act of 1934. Conclusion “No business, large or small, is immune from errors” (Keiso, Weygandt, & Warfield, 2007, p. 1166). Huron Consulting Group Inc. is no exception.
Unfortunately, the experience of Huron’s Accounting and Financial Consulting segment, which helps its clients with accounting and financial reporting matters, financial analysis in business disputes, international arbitration and litigation as well as valuation analysis related to business acquisitions did not provide them with immunity from errors that resulted in the restatement. References BusinessWeek. Retrieved December 4, 2009. http://www. huronconsultinggroup. com/professional BusinessWeek. Retrieved December 4, 2009. http://investing. businessweek. com/research/stocks/people/person. asp? personId=154638&ric=HURN. O BusinessWeek.
Retrieved December 4, 2009. http://investing. businessweek. com/research/stocks/people/person. asp? personId=2414023&ric=HURN. Huron Consulting Group, Inc. Press Release – CHICAGO (BUSINESS WIRE). July 31, 2009. Page 1 Keiso, Donald E. , Weygandt, Jerry J. , & Warfield, Terry D. (2007). Intermediate accounting. Retrieved from https://ecampus. phoenix. edu/. Linkedin. com. Retrieved December 4, 2009. http://www. linkedin. com/pub/wayne-lipski/16/205/444 Whitehouse, Tammy. “Financial Statement Consulting Firm Finds Itself Restating”. COMPLIANCE WEEK. August 4, 2009 ———————– RESTATEMENT HURON CONSULTING GROUP, INC. 6