Updated from 2:57 p.m. EST

The chairman and chief executive of

Aurora Foods

(AOR) - Get Report

, Ian Wilson, resigned Friday as the company began an investigation of its accounting practices and said an expected special charge could eliminate last year's earnings.

Three other executives resigned as well: vice chairman James Ardrey, executive vice president Ray Chung and chief financial officer M. Laurie Cummings.

Aurora's stock did not open for trading Friday. The shares closed Thursday at 7 5/16, down 1/8, or 2%, near their 52-week low of 6 3/4.

The investigation at Aurora, which makes such products as Duncan Hines cake mixes and Lender's bagels, was initiated after the company's board met with

PricewaterhouseCoopers

, Aurora's auditor. A special committee has been formed to examine the company's accrual rate for trade promotion expenses from last year and to look into accounting practices for earlier periods.

Trade promotions occur regularly and can range anywhere from centerpieces to be placed on the shelf in a grocery store to a two-for-one deal. When accounting for those expenses, the expenses must be matched with the revenues. The conservative school of accounting would recognize the expense in the same quarter that the promotion was offered to the grocer. However, a less conservative method would be to defer some of the expenses into a future period.

"This is one of the most wide open areas in accounting in the food industry," said analyst David Goldman of

Banc of America Securities

. "But usually the management and auditors agree." He rates Aurora a market performer and his firm has done no underwriting for the company.

The investigation is expected to result in a non-cash charge to 1999 earnings, with a "material" reduction in earnings for 1999 and "possibly a small loss for the full year," according to a statement from the company. Goldman estimated the charge will likely exceed $45 million after tax, or 78 cents a share.

Earnings projections for 2000 are being reevaluated. Aurora had been expected to earn 79 cents a share in 1999 and 92 cents in 2000, according to the consensus estimate of analysts polled by

First Call/Thomson Financial

. However, those estimates are sure to be revised downwards after the charge is quantified.

Last Thursday, Aurora delayed the release of its 1999 results, saying its "accountants have not completed their audit and need additional time to finish their work."

Richard Dresdale, president of

Fenway Partners

, has been appointed acting chairman and David De Leeuw, managing director of

McCown De Leeuw

, as acting vice chairman. Together, investment funds managed by Fenway and McCown De Leeuw own about 46% of the San Francisco-based company's shares outstanding.

The shares have tumbled 44% in the last three months. "Given that the company is largely owned by financial partners who are likely searching for an exit strategy, I would not be surprised to find the company on the auction block," Goldman said. "The company's cash flow and very strong brands could fetch a price significantly higher than the current public market valuation."

"The top four

senior managers are no longer there. We now have a wounded stock," Goldman added. "Wall Street has decided it has material flaws and will therefore avoid it. There is sure to be a selloff when it opens."