Control Gaps in China Spawn Restatement

Anaren Inc. understated cost of sales and overstated pretax income because of errors in accounts-payable accruals and inventory reconciliation.

As a result of control deficiencies that have cropped up the Suzhou, China subsidiary of Anaren Inc., a supplier to the wireless and satellite electronics sectors, will probably restate previously reported financials.

For the nine months ended March 31, 2007, the Syracuse, N.Y.-based company overstated its pretax income by $800,000 to $900,000 and understated its cost of sales because of errors in accounts-payable accruals and inventory reconciliation, Anaren reported on Monday.

Management, however, doesn’t believe these errors had a material impact on any periods prior to the second quarter of 2007. The company reported that the pretax income overstatement resulted from unapproved and undetected changes at the China subsidiary in the way the company accounts for the reconciliation of inventory and the recording of vendor payables for materials received but not yet invoiced.

Those procedural changes were made without the knowledge of management, and the control procedures to identify the changes were ineffective, the company found. The company’s stock dropped more than 6 percent Tuesday morning in response to the news.

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