Overstock.com Inc (OSTK), Tuesday, said it was surprised by the "inaccurate statements" made by its now dismissed auditing firm Grant Thornton, while refuting certain details in the auditing firm's letter to the SEC. The letter contained Grant Thornton's position on the online retailer's overpayment recovery adjustments in previous financial statement filings.
Overstock has filed Form 8-K/A with Grant Thornton's response to the SEC.
In a letter to the shareholders, Overstock's Chairman and Chief Executive Officer Patrick Byrne said that Grant Thornton, while reviewing the company's 2008 results, was "comfortable" with past accounting practices before accepting audit engagement in first quarter 2009.
Grant Thornton had also reviewed first and second quarter 2009 financial statements before the company filed Form 10-Qs for those quarters, and did not question or object to accounting for a $0.758 million overpayment recovery, notified by a partner of the company in February.
The Overstock executive cited its local Grant Thornton engagement partner stating in October, "in light of the circumstances at the time and given the judgment utilized by Overstock, Grant Thornton had determined that our accounting treatment for this overpayment recovery was not unreasonable." The statement was, in fact, made after the partner's review with the firm's regional and national offices, noted Patrick.
Overstock.com, in its earlier letter on November 16, justified the over-payment adjustment, stating its decision to recognize the sum as and when it was recovered, and not make a "mistake" by including the amount as an asset in 2008 statements. The decision was agreed-to by PricewaterhouseCoopers, who were auditors of the company at that time.
According to Grant Thornton, Overstock "reduced its cost of goods sold in the first quarter of 2009" on receiving of the overpayment refund. Further, the company had unresolved "additional items" that could have impacted earlier interim results.
Meanwhile, Overstock has noted that Grant Thornton asked the company to restate its earlier quarter and prior-year results only after an SEC letter to the company was received on November 3 asking an explanation for the overpayment adjustments.
Subsequently, the company announced the dismissal of Grant Thornton, following the latter's refusal to sign-off on its third quarter results. Overstock filed an un-audited version of the results to the SEC.
Adding further "proof" that the company's auditing committee made the right decision regarding the dismissal, the chief executive said that Overstock.com has been repeatedly consulting the auditing firm regarding the overpayment, and always received a "no" when quizzed for another possible accounting method.
On November 19, the company received a listing rule violation letter from Nasdaq, informing that its Form 10-Q was not reviewed in accordance with an auditing standard and also lacked some certifications required by the Sarbanes-Oxley anti-fraud law.
Salt Lake City- based Overstock.com has until Jan. 18 to submit a plan to regain compliance with the Nasdaq Listing Rules. The company said it will continue to work with the SEC on the issues addressed in its comment letters, and file reviewed results eventually.
OSTK last traded at $15.50, losing 60 cents or 3.73% on Tuesday. In after-hours trading, shares gained those 60 cents, currently at $16.10 on the Nasdaq.
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