Tech Data 2013 Annual Report Download - page 55

Table of Contents
NOTE 2 — RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
On March 21, 2013, the Company announced that it would restate previously issued quarterly and audited annual financial statements to correct
accounting improprieties involving vendor accounting within the Company's primary operating subsidiary in the UK. The Company further stated
that financial statements as of and for the fiscal years ended 2011, 2012, and 2013 and each of the fiscal quarters in 2011, 2012 and 2013 should no
longer be relied upon. Thereafter, the Audit Committee initiated an independent investigation by outside counsel, to review certain of the
Company’s accounting practices throughout Europe. Concurrently, the Company engaged significant internal and external resources to perform
supplemental procedures to assist in reviewing its financial statements and accounting practices (the "Supplemental Procedures"). The Audit
Committee has completed its investigation and has identified certain accounting irregularities in the UK subsidiary and certain other European
subsidiaries.
The cumulative adjustments required to correct the errors in the financial statements prior to the fiscal year ended January 31, 2011 are reflected in
the restated consolidated statement of shareholders’ equity as of February 1, 2010. The cumulative effect of those adjustments decreased previously
reported retained earnings by $ 1.1 million . This decrease primarily relates to the impact of an improper deferral of net foreign currency exchange
losses in a European subsidiary from fiscal 2009 that was recognized over several subsequent fiscal periods, partially offset by the timing of
recognition of various transactions with the Company's product suppliers.
The restatement reflects two primary categories of adjustments:
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• Adjustments relating to the inadequate control environment identified within the Company’s primary operating subsidiary in the UK and
two other European subsidiaries. These adjustments are necessary primarily to correct errors arising as a result of the following:
• Improper accounting for transactions with the Company’s product suppliers (also referred to as “vendor accounting”), including
the recognition of vendor incentives, product discounts/price variances, promotions and other vendor credits. These errors
primarily affected inventory, accounts payable and cost of goods sold.
• Improper manual journal entries and the override of key balance sheet reconciliation controls by local management. These errors
affected multiple accounts within the Company’s balance sheet and income statement.
•
Improper recognition of net foreign currency exchange losses, which resulted in an overstatement of cost of goods sold during the
three fiscal years ended January 31, 2013. Multiple accounts on the balance sheet were affected during this period.
• Improper accounting for accounts receivable, including improper cash application and recording of value added taxes. These
errors primarily affected accounts receivable, accrued expenses and net sales.
• Improper cutoff of certain inventory transactions at period end, which resulted in a net understatement of inventory and
understatement of accounts payable or cost of goods sold.
• Improper cutoff of certain cash receipts at period end, which resulted in an overstatement of cash and understatement of accounts
receivable.
•
Adjustments identified within subsidiaries in addition to the UK subsidiary and two other European subsidiaries noted above, including the
following:
• Adjustments to correct the Company’s presentation of sales of vendor warranty services and certain fulfillment contracts. During
the first quarter of fiscal 2013, the Company began presenting sales of vendor warranty services and certain fulfillment contracts
on an agency basis as net fees, instead of as gross revenues and cost of sales as they had been presented in prior periods. Given
this correction had no impact on gross profit, operating income or net income, and only an insignificant impact on net sales, prior
periods were previously not adjusted to reflect this correction. However, in connection with the restatement, the Company has
adjusted its prior period results to properly present such sales of vendor warranty services and certain fulfillment contracts on an
agency basis as net fees, consistent with fiscal year 2013.
•
Adjustments for errors primarily related to the timing of recognition and classification of various vendor accounting transactions.
•
Certain adjustments previously identified and considered immaterial, including:
• Reclassification of gains (losses) on investments related to the Company’s nonqualified deferred compensation plan,
which had no impact on previously reported pre-tax or net income. This reclassification impacted selling, general and
administrative expenses and other expense (income), net.
• Adjustments to accounts receivable, inventory, sales and cost of goods sold to record the impact of estimated sales
returns for which the Company had previously only recorded the net impact on gross profit.
• Other immaterial adjustments to correct errors in sales or inventory cutoff and accrued expenses. These adjustments
primarily affected accounts receivable, inventory, accrued expenses, and the Consolidated Statement of Income.