While smaller companies aren't required to certify their financial results with the Securities and Exchange Commission Wednesday, recent disclosures from some of these firms suggest they are taking that edict and the new securities laws seriously. Generic drugmaker Andrx ( ADRX), for example, came clean Tuesday about accounting irregularities that took place over the last three years. During a conference call with analysts, the company said a low-level manager altered records pertaining to its accounts receivable, or money owed and not collected, by up to $15 million since January 1999. Shares of Andrx fell $2.78, or 12%, to $20.54 Tuesday. "Based on our discussions with the employee, he claimed that he did this on his own accord, not at the instruction of management, solely so his job performance could appear to be better than it was," said Chief Financial Officer Angelo Malahias on the conference call. Analysts suggest the accounting misstep could have inflated earnings by as much as 4% since 1999.
"Some of these smaller companies are still within the SEC radar screen," said Thomas Hazen, a securities law professor at the University of North Carolina. "They may not be subject to certification, but the Sarbanes-Oxley legislation is going to cover all companies." Cutter & Buck ( CBUK) -- another company that won't be signing a sworn affidavit Wednesday -- said it, too, uncovered accounting irregularities in fiscal 2000 and 2001 and that its chief financial officer has resigned. The sportswear company said it would restate results to correct entries of sales into incorrect periods, and inaccurate reporting of sales by distribution channels. Shares of Cutter & Black fell 58 cents, or 14%, to $3.44. Several other companies have also adjusted their numbers recently, including Hanover Compressor ( HC), MSC Industrial Direct ( MSM), Bio-Technology General ( BTGC) and A&P ( GAP), although the latter actually revised its earnings higher for 2001 and 1999. "We seem to be in a new regime," said Edward Ketz, an accounting professor at Penn State's Smeal College of Business. "The markets have hit everyone hard, and these companies feel that they can't be penalized that much more, especially if it's a fairly minor indiscretion. This might be a good time to clean house."