Financial news

Mattel’s CFO to depart after audit errors found

By  | 

Via Financial Times

Mattel’s chief financial officer is leaving the US toy company after a board investigation prompted by a whistleblower complaint uncovered errors in its accounting and breaches of auditor independence rules.

But the toymaker said the investigation, conducted by the board’s audit committee with an outside law firm and forensic accountants, had “no impact on Mattel’s full year financial results for 2017 or subsequent periods”.

Mattel shares rallied 19 per cent in after-hours trading following the announcement of the findings alongside third-quarter financial results. The stock had tumbled in August after the company disclosed the anonymous whistleblower letter, but not its contents.

The company did not blame the accounting problems on Joseph Euteneuer, the outgoing CFO, but said the six-month “transition plan” was one of the steps it was taking in response to the investigation’s findings. It also said that PwC, the company’s auditor, had replaced an unidentified partner who dealt with Mattel.

The investigation found errors in Mattel’s publicly disclosed financial statements, specifically income tax expenses that had been understated by $109m in the third quarter of 2017. Ultimately, there was no impact on the company’s full-year accounts, since expenses had been overstated by the same amount in the fourth quarter of 2017.

Nevertheless, the investigation determined that Mattel had “certain material weaknesses in its internal control over financial reporting”, the company said. It identified “lapses in judgment by management” but “did not find that management engaged in fraud”.

Mattel, behind brands including Barbie, American Girl and Fisher-Price, said the error was not reported to Margaret Georgiadis, the company’s then-chief executive, nor its audit committee, which is chaired by Vasant Prabhu, Visa’s chief financial officer.

READ ALSO  SE: Keiser Report: Trump: Easy to read (E1463)

It was uncovered only after the whistleblower sent the letter in August to PwC, raising concerns about accounting errors and questioning whether the audit firm was independent.

As well as the accounting problems, the audit committee’s investigation — as well as a separate probe by PwC — also found “violations of the SEC’s auditor independence rules”. The lead audit partner at PwC had recommended candidates for senior finance positions at the company.

A PwC spokesman did not immediately respond when asked the identity of the partner concerned, nor whether the individual still worked for PwC.

However, Mattel and PwC said that having considered “the nature and severity of these matters”, the impartiality Mattel’s outside auditor had “not been impaired”. Many of the whistleblower allegations were unfounded, the company said.

Mattel said it was conducting a search for a successor to Mr Euteneuer and added it had already made other personnel changes, including hiring a new controller and a new senior vice-president of tax.

Ynon Kreiz, Mattel chief executive, said he would work with the board’s audit committee to “implement remedial measures”, including strengthening its accounting policies, internal controls and employee training.

Mr Kreiz added in a separate statement about Mr Euteneuer’s departure: “Joe has been a valued member of our leadership team since joining Mattel two years ago . . . I thank him for his commitment through the transition of the CFO role.”

Mr Euteneuer said: “It has been a privilege to work alongside Ynon and the talented team at Mattel . . . I am grateful for my time at the company and look forward to continue working with the leadership and finance teams to ensure a seamless transition.”

READ ALSO  Institutional change and development in lagging regions in Europe

PwC said it “takes independence very seriously and has robust policies and procedures in place to identify and address potential threats to independence”.

The investigation was conducted with the law firm O’Melveny & Myers and forensic accountants from FTI Consulting.

Print Friendly, PDF & Email

Hold dit netværk orienteret