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Financial Statement Restatement - Northwest Pipe
Vancouver-based Northwest Pipe Co., the seventeenth largest public company in Oregon and southwest Washington, manufactures large-diameter, high-pressure steel pipelines, primarily used in infrastructure projects for drinking water systems (The Columbian, 2010). Since November 2009, the roughly $400 million pipe maker has disclosed an internal accounting investigation, been hit with two lawsuits, received repeated delisting threats from NASDAQ, and is under investigation by the Securities & Exchange Commission (Siemers, 2010).
A 2009 internal investigation related to the company’s revenue recognition practices identified a material error in its accounting practice causing it to overstate earnings. Northwest Pipe’s largest division, which makes massive steel pipes used in water transmission projects, recognizes revenue based on the percentage-of-completion method (Siemers, 2010). The company cited lack of internal financial controls, an absence of effective communication, and the absence of proper procedures to ensure it maintained complete and accurate business documentation to support certain revenue, property and equipment, foreign exchange and vendor claim transactions, including related assumptions and estimates (The Columbian, 2010).
In response to investigation findings, the company restated previously issued financial statements covering the 2007 and 2008 calendar years, the third quarter in 2008, and all four quarters in 2009. The restatements identify combined overstated sales by $10.7 million and profits of $14.8 million from the start of 2007 through June 30, 2009 (Kish, 2010).
Stockholders filed a lawsuit claiming Northwest Pipe’s common stock traded between April 23, 2008 and November 11, 2009 was artificially inflated because of overstated revenues and earnings caused by failure to recognize revenues in accordance with generally accepted accounting principles (GAAP) (SBWire, 2012)....