SAN DIMAS, Calif.–After a review by auditors, WesCorp has restated its earnings for 2005, made adjustments to its 2006 earnings and revised its hedge accounting practices for 2007.
The result of the restatement, according to the $33-billion WesCorp and auditor KPMG, LLP, is an increase in income and retained earnings of $16.1 million over the period 2005 to September 2007, with 2005 now showing a negative adjustment of $22.9 million, but 2006 and 2007 (through Sept. 30) showing positive increases to net income of $16.9 million and $22.1 million.
The restatement follows 10 months of discussions and review by KPMG and WesCorp, which said the delay in publishing the 2006 audited financials was due to a “difference of opinion in the interpretation of Statement of Financial Accounting Standards (SFAS) 133 for certain derivative transactions used in WesCorp’s hedging strategies to manage interest rate risk.”
In a released statement, WesCorp EVP/CFO Todd Lane said, “This year alone (2007), we have realized a positive adjustment to net income of $22.1 million at the close of September. That positive adjustment to net income offsets the negative adjustment resulting from the restatement of 2005.”
Lane said WesCorp and KPMG had concluded that some of the corporate’s documentation for certain hedge transactions did not meet the qualifications for hedge accounting under the “short cut” methodology. “Interpretations of SFAS 133 in 2005 differ from those of today,” said Lane. “Therefore, by restating our financials, we clearly demonstrate to our member depositors and others with whom we invest that WesCorp’s financial statements adhere to the most recent guidance for accounting treatment of hedge transactions under SFAS 133.”
WesCorp said it is its position that most of the hedges occurring during the periods under review would have qualified for hedge accounting under the "long haul" methodology, but that accounting cannot be applied retroactively. Consequently, the restatement assumes hedge accounting was not applicable to these derivatives and the related hedged item.
