In accordance to the SEC’s grievance, submitted Friday in the U.S. District Court docket for the Southern District of New York, in December 2016, shortly just after passing its annual goodwill tests, Sequential executed interior calculations displaying, owing to declining inventory costs, the enterprise “would are unsuccessful the initially action of its disclosed two-stage impairment examination.” Sequential disregarded this “objective proof of impairment,” the SEC alleges.
As an alternative, says the SEC, Sequential “performed a qualitative assessment that omitted any mention of its internal calculations, as very well as numerous other adverse developments in the company’s business enterprise, major it to unreasonably conclude that goodwill was not impaired. As alleged, by staying away from an impairment to its goodwill in 2016, Sequential inflated its income from functions, designed a false impact of its monetary situation, and misstated its economical statements and reviews for pretty much a calendar year.”
These kinds of carry out was built attainable by way of the acts and omissions of Sequential’s senior accounting and finance personnel, including its then-chief financial officer, president and interim CFO, and vice president of finance, the SEC complaint states. The SEC even more alleges Sequential’s internal accounting controls relating to the assessment of goodwill impairment were “deficient in style and design and software and unsuccessful to deliver reasonable assurance that its economic statements had been materially correct and that it accounted for goodwill in compliance with governing accounting requirements.”
Sequential ongoing with this deceptive perform for three more quarters until it belatedly impaired all its goodwill—$304.1 million—in the fourth quarter of 2017, the criticism states.
“Companies carrying goodwill on their publications and tests for impairment must contemplate and properly weigh all applicable information and circumstances when assessing whether or not to impair goodwill and have to do so in a timely vogue,” stated Melissa Hodgman, an associate director in the SEC’s Division of Enforcement, in a push launch.
The SEC’s complaint costs Sequential with violating antifraud, reporting, publications and data, and interior controls provisions of the federal securities rules and seeks injunctive relief and civil monetary penalties.