NEC probed over delay in filing results

NEC, the Japanese electronics group, said on Tuesday it was being investigated by the US Securities and Exchange Commission in connection with its delay in filing results for the last financial year.

NEC said it had received “a letter of informal inquiry from the SEC requesting voluntary production of certain documents” following the delay to its annual results.

The Japanese group gave no further information but said it intended “to co-operate fully with the SEC in connection with this inquiry”.

NEC earlier this month received notice from Nasdaq that it could face de-listing as a result of its failure to provide its annual report for last year. The filing was due not later than October 2 this year.

The Japanese group said it intended to maintain its Nasdaq listing but could not say when it might be able to provide last year’s results under US GAAP.

“We are working on the analysis in order to obtain an auditor’s report and maintain our Nasdaq listing,” NEC said. “At the earliest it will take until the end of November.”

According to its filing with the SEC last month, NEC’s US auditors failed to recognise revenue from certain maintenance and support services.

NEC said it had been unable “to gather the data necessary to complete the audit with respect to the vendor-specific objective evidence of the relative fair value of maintenance and support services”.

It warned further that it was unable to determine whether any adjustments to previously announced financial results would be required as a result of the review.

The group also said that its delayed results filing would reveal that its “disclosure controls and procedures are ineffective”. The filing would also show that NEC “does not have an adequate system of internal control” to ensure that material errors do not occur in the preparation of US GAAP consolidated financial statements.

It said it had identified a number of irregularities during the past two years, including “improper accounting practices for revenue recognition related to two US subsidiaries, fictitious sales transactions occurring for more than three years at a Japanese subsidiary, and several irregularities at certain other business units”.

NEC said it would change its accounting principles for consolidated financial statements for the first half in Japan from US GAAP to Japanese GAAP in order to be able to report its first-half results in Japan.

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