MSC.Software Announces a Summary of the Results of the Audit Committee's Independent Review
February 16 2005 - 8:01AM
PR Newswire (US)
MSC.Software Announces a Summary of the Results of the Audit
Committee's Independent Review SANTA ANA, Calif., Feb. 16
/PRNewswire-FirstCall/ -- MSC.Software Corp. (NYSE:MNS), today
announced that the previously disclosed independent review directed
by its Audit Committee is now complete and the report to the Audit
Committee from its legal counsel has been presented to the Board of
Directors of MSC.Software. Key conclusions from the report are
summarized below. The independent review found evidence that
information was withheld from, and inaccurate or misleading
information was provided to, the Company's independent public
auditors in connection with the accounting treatment of stock
options of a departing employee of a foreign subsidiary and revenue
recognition with respect to software contracts in Korea. The
independent review found instances where backdated documents were
obtained or sought, either to accelerate revenue or to provide
audit documentation to the Company's independent auditors. Although
the independent review did not review all transactions, the
independent review did not observe any significant pattern or
practice of intentional backdating of documents by Company
employees or any evidence of a systematic attempt by the Company's
management to alter or manage revenues. The independent review
raised concerns regarding the timing of the recognition of
revenues, the completeness of the documentation required to
recognize revenue, the implementation of appropriate cut-off
procedures at the end of accounting periods and other failures to
comply with generally accepted accounting principles. These
concerns, as well as revenue recognition in general, will be
addressed as part of the Company's previously announced restatement
of the Company's financial statements for all periods subsequent to
December 31, 2000. The Company believes that the timing and
allocation of revenue between deferred revenue and recognized
revenue will change. What impact the Company's review of revenue
recognition will have on its reported revenues for various periods
cannot yet be determined. The Company also intends to make certain
non-revenue adjustments as part of the restatement process. These
proposed adjustments relate to the following items: * an increase
in selling, general and administrative expense and additional
paid-in capital in 2002 relating to a compensation charge as a
result of the modification of stock options of two departing
employees; * revenue recognized in the fourth quarter of 2002 that
should have been deferred as a result of MSC.Software's settlement
with the FTC in November of 2002; * an increase to retained
earnings as of January 1, 2001 resulting from the reversal of a
valuation reserve for capitalized software; * decreases in the
income tax provisions in 2001, 2002 and 2003 related to the tax
effects of the adjustments described above and the accounting for a
deferred tax liability in connection with an acquisition; *
recognizing an accrual for certain foreign defined benefit plans in
the applicable years rather than in 2003; * a decrease in goodwill
in 2001 and a decrease in related impairment charges in 2002, in
each case relating to the acquisition of Advanced Enterprise
Solutions, Inc.; * an adjustment to loss on disposal of
discontinued operations relating to the revised estimate of cash
flows for the Southfield office lease in the fourth quarter of
2003; * reclassification of goodwill amounts related to the
acquisition of MSC-Australia; this acquisition took place in 2000
and the adjustments will impact 2001 and 2002; * write-off of the
Korean unearned/unbilled income account from the 2001 balance
sheet; and * an adjustment to the accounting for a key man life
insurance policy to record the cash surrender value in 2001 and
related adjustments in 2002. The exact impact of these proposed
adjustments will be determined as part of the Company's restatement
process. The independent review raised additional questions
regarding the accounting treatment for the Company's acquisition of
Advanced Enterprise Solutions, Inc. in July 2001. This issue is
being reviewed by the Company and any changes required to that
accounting will be part of the Company's restatement process.
Finally, the independent review observed certain internal control
weaknesses that contributed to the revenue and non-revenue concerns
identified during the independent review. The internal control
weaknesses observed were (1) weak oversight in the overall control
environment; (2) an organizational structure that compromised the
regional finance function's independence in evaluating judgments
and estimates to achieve accurate financial reporting; (3)
ambiguous and inconsistent internal accounting policies and
procedure; (4) inadequate monitoring and Oracle system controls in
the revenue data entry process; (5) insufficient documentation of
assumptions and judgments to support historical accounting; and (6)
insufficient skills and/or training to ensure that the Company's
internal accounting policies and procedures would generate
financial reporting in accordance with GAAP. The restatement, once
completed, will be subject to audit by the Company's independent
auditors. When the restatement is complete and it has been audited,
the Company will make the filings necessary to become current under
the requirements of the Securities and Exchange Commission. No
assurance can be given as to the time required to complete the
restatement or that additional accounting issues will not arise
during this process. The Company's new Chief Executive Officer,
William Weyand, noted that "the Company appreciates the manner in
which the Audit Committee handled this matter. There have been a
number of recent and significant changes in Company personnel and
the new management team is committed to upgrading the Company's
financial controls and reporting processes to ensure compliance
with accounting standards." As part of this effort, the Company has
revised its organizational structure, created an internal audit
function, strengthened document control and data entry processes,
instituted training worldwide and implemented and will continue to
implement other changes to its internal controls and procedures to
rectify deficiencies observed by the Audit Committee review and
otherwise to comply with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002. The Company cooperated fully with the
independent review and is working diligently to complete the
restatement of its financial statements as soon as possible. About
MSC.Software Corporation MSC.Software (NYSE:MNS) is the leading
global provider of virtual product development (VPD) products
including simulation software and services that help companies make
money, save time and reduce costs associated with designing and
testing manufactured products. MSC.Software works with thousands of
companies in hundreds of industries to develop better products
faster by utilizing information technology, software and services.
MSC.Software employs more than 1300 people in 22 countries. For
additional information about MSC.Software's products and services,
please visit http://www.mscsoftware.com/. DATASOURCE: MSC.Software
Corporation CONTACT: Investor, Joanne Keates, Vice President,
Investor Relations, +1-714-444-8551, , or Media, Todd Evans,
Corporate Communications, +1-714-445-3066, , both of MSC.Software
Corporation Web site: http://www.mscsoftware.com/
Copyright
Msc.Software (NYSE:MNS)
Historical Stock Chart
From Aug 2024 to Sep 2024
Msc.Software (NYSE:MNS)
Historical Stock Chart
From Sep 2023 to Sep 2024
Real-Time news about Msc.Software Corp (New York Stock Exchange): 0 recent articles
More Msc Softward Cp News Articles