Medicis Pharmaceutical said that it is likely to restate its financial reports for fiscal 2003 through 2007, and the first two quarters of 2008, to reflect a new “technical interpretation” of accounting principles for sales-return reserve calculations.
The drug maker said that investors should no longer rely on the effectiveness of its internal control over financial reporting for the related periods.
It explained in a regulatory filing that its prior accounting method for sales-return reserves accrued returns at replacement cost, rather than by deferring the gross sales price based on the company’s view of the economic impact of returns on its business. Medicis said it is now revising its reserve calculations to defer the gross sales value of the returned product.
The error, it said, was identified during an inspection of Ernst & Young LLP’s audit of the company’s 2007 financial statements. Medicis said that it disclosed to its auditors the sales-return reserve methodology, and that Medicis received an unqualified opinion on the financial statements for each fiscal year presented.
Medicis said management does not expect to reach a final conclusion on the restatement’s effect on internal control over financial reporting and disclosure controls and procedures until completion of the restatement process.
The company said that will file its restated financials “as soon as practicable;” that it has been in contact with the Securities and Exchange Commission; and that it is working closely on the issue with E&Y.