Florham Park, N.J. (June 23, 2004) -- Global Crossing said an independent investigation into the company's accounting troubles didn't reveal any prior knowledge by management or indications of management integrity issues, and said it's implementing improved internal controls.
The investigation by Deloitte & Touche into Global Crossing's understatement of cost-of-access liabilities and expenses didn't reveal any knowledge by management of an understatement related to the year-end 2003 financial statements until after the filing of such financial statements in March 2004, the company said this week.
"The company has responded to the situation appropriately and expeditiously -- we uncovered a problem, made prompt public disclosure, addressed the problem with both internal and independent investigations, and are ensuring the implementation of more stringent controls in the future," Global Crossing chief executive John Legere said.
The company's independent audit committee hired D&T in May to conduct the investigation after Global Crossing announced in late April that its previously reported 2002 and 2003 financial statements should be disregarded because of an understatement of its accrued cost-of-access liability at year-end 2003. Global Crossing emerged from bankruptcy in December 2003.
Deloitte, which interviewed 26 employees and reviewed more than 90,000 e-mails and other documents as part of its inquiry, identified weaknesses in the processes, procedures and controls surrounding cost of access in North America, including the failure to reconcile estimates of cost-of-access expenses to vendor-invoiced amounts, but said the issues don't appear to exist in Global Crossing's operations in the U.K. and Europe.
Based in part on Deloitte's observations, the company's board directed its management, under the oversight of the audit committee, to continue to implement remediation measures that include adding systems and procedures for reconciling vendor invoices to accruals for cost-of-access expenses and conducting a required skill level analysis for cost-of-access-related functions and supplementing resources accordingly. The company said it will also develop comprehensive documentation of cost-of-access expense and accrual processes and procedures; hire an expert to assess organizational structures and their relationship to reporting risk; and improve support tools for estimating and disputing cost-of-access expenses and training personnel on the use of such tools and on cost-of-access processes.
The audit committee hired Grant Thornton to evaluate the understated cost-of-access liability and determine whether it can re-issue its previously withdrawn audit or whether a restatement of some or all of the related financial statements is required. Global Crossing estimated that the understatement was between $50 million and $80 million, of which roughly $10 million reflects an erroneous classification within its emergence balance sheet under fresh-start accounting rules.
-- WebCPA staff
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