Dutch retail giant Ahold has said that European stock markets operator Euronext has decided to give Ahold a serious written warning regarding the way the company revealed massive accounting irregularities at its US Foodservice unit in February 2003.
The Euronext Listing and Issuing Rules Advisory Committee said Ahold had violated Euronext rules by not disclosing – at least in general terms – within a few days of learning on 12 February 2003 that an apparently extensive fraud had been detected at US Foodservice. The company did not issue a press release revealing the accounting irregularities until 24 February 2003.
Ahold also said it had been accused of breaching the rules by not disclosing “the (serious) doubts that had arisen regarding the possibility to consolidate ICA under Dutch GAAP for fiscal year 2002 on or shortly after 13 January 2003”.
Ahold said it disagreed with Euronext’s decision, as well as the advice of the Committee, which the company claimed is based on an incomplete and incorrect understanding of the facts. The company added that it is not able to appeal Euronext’s decision.
Regarding the consolidation of ICA, Ahold said it believes that “the factual evidence shows that it was insufficiently established on 13 January 2003, that the consolidation of ICA would not be permitted”.
“Therefore, issuing a press release regarding this matter on or shortly after 13 January 2003 would have been potentially misleading,” Ahold said.
On the subject of US Foodservice, Ahold said it had taken “significant time” for the Dutch company to fully understand the magnitude of the accounting irregularities at US Foodservice, and that the issuance of a press release prior to 24 February was not required under Euronext rules.
Ahold said it had been informed on 12 February that accounting irregularities concerning the recognition of vendor allowances had been discovered at US Foodservice. The company said it immediately hired external experts to begin an investigation to determine the extent of the accounting irregularities.
“As a consequence of the complex nature of the promotional allowance arrangements at US Foodservice and the concealment of information relating to such arrangements by former members of US Foodservice’s management, Ahold did not have a sufficient understanding of the magnitude of the accounting irregularities at US Foodservice until the weekend of 22-23 February,” the company said.
Ahold said it believed that issuing a general press release on or shortly after 12 February could have been potentially misleading, and would have created uncertainty among investors.