Swiss staffing giant Adecco (NYSE:ADO) announced that it would delay reporting its 2003 results beyond their Feb. 4 due date in order to investigate and potentially correct "possible accounting, control, and compliance" issues in its North American operations. Investors were understandably non-plussed, sending the Swiss shares down more than 40%, and their New York Stock Exchange equivalents down 25% in mid-afternoon trading.
With the announcement, Adecco becomes the fourth massive European company in the past few months to announce accounting problems. The party started when Royal Ahold (NYSE:AHO) found irregularities at its U.S. Foodservices subsidiary in March, followed by the stunning revelation of billions in missing cash and forged documents at Parmalat. Then, on Friday, Royal Dutch (NYSE:RD) announced that its proven oil reserves were overstated by more than 20%.
Now comes Adecco, which claims that its auditors will require significant work to be done in certain areas revolving around its accounts at Adecco Staffing -- one of four company divisions -- before it can put its imprimatur on company financial statements.
It's important to note two things. First, the Swiss Exchange has said that it has no intention of probing into Adecco for potential fraud issues, stating that the company has until June to file its annual report. Should the company not manage to clear up its accounts by then the Exchange's stance could change. Second, Adecco's business is somewhat simple in construction -- tracking sources and uses should not be a horrible task.
But, at the same time, Adecco's disclosure that there are compliance problems in certain countries should not be taken lightly. How deep are the problems? Adecco isn't saying at this time, which more than likely is attributed to the sharp drop in stock price. Investors do not like uncertainty, and over the past few years have seen more than their share of initial "Hey, we have a little problem" disclosures that have turned into complete nightmares -- Parmalat being the most recent of these.
So, while we can look at the current facts and say, "Heh, there's nothing about revenues or earnings here," the fact is, we don't know the details. In such cases, investors ought to be very, very careful. Those entering into Adecco seeking to benefit from an "overdone" drop might want to recognize that facts are in short supply and admit to themselves that they're guessing.
