Monday, February 07, 2005

Sorry, the Auditor Said, but We Want a Divorce

Howard Root, chief executive of Vascular Solutions, got a jolt in September as he was preparing his company for a routine examination by Ernst & Young, the Big Four firm that had been its auditor since it was founded in 1997. Without warning, and less than three months before Vascular's annual report was due at the Securities and Exchange Commission, Ernst & Young quit.

But why? Mr. Root said that there were no financial improprieties or deteriorating prospects at Vascular Solutions, a medical devices maker based in Minneapolis. In fact, he said, the company had just reported record sales and shrinking losses. The company had no disagreements with Ernst & Young, he said.

Rather, Mr. Root said, Ernst & Young told him that it didn't have enough people to handle the mountain of extra work created by the Sarbanes-Oxley corporate watchdog act - especially for smaller clients like Vascular Solutions, which had net sales of around $20 million last year. The Sarbanes-Oxley law, passed in 2002, tightens accounting procedures and imposes new reporting rules on publicly traded companies and their outside auditors.

The timing of Ernst & Young's resignation was like "being served with divorce papers with no notice," Mr. Root said. "If you're going to get dropped," he added, "it's usually for the next year's work." A spokesman for Ernst & Young declined to comment.

Sorry, the Auditor Said, but We Want a Divorce

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