The connections keep fraying at Global Crossing ( GLBC).In an unusual move, the Bermuda-based telco conceded Thursday that it can't count on its former auditors to help with the latest cleanup of its books. According to a federal filing Thursday, Grant Thornton withdrew its audit reports for the past three quarters, saying the firm "cannot continue to be associated with" Global Crossing's financial statements. Grant Thornton was replaced by Ernst & Young on April 1 after it reported some concerns about the company's methods. Grant Thornton had raised questions about what it called "significant deficiencies" that, in the aggregate, constituted "material weaknesses" in Global Crossing's accounting. Global Crossing didn't have any immediate comment. But the news of reviving bookkeeping worries stunned investors who assumed that Global Crossing had moved past an ugly period that ended in a widely publicized 2002 bankruptcy. And judging by this week's plunge in Global Crossing shares, it seems the auditors may have been on to something. On Tuesday, Global Crossing said it would have to restate its 2003 financial results because it underestimated access costs. Those include expenses like the fees Global Crossing owes other phone companies that handle its traffic. The company says its own preliminary review uncovered between $50 million and $80 million in understated access liabilities in 2003. Access costs are the largest expense for the company, totaling $2 billion last year. Due to the discovery, the company says its previous financial outlook for 2004 is no longer valid and that it is also reviewing the books for 2002. Of course, Grant Thornton's criticisms of the Global Crossing books weren't as pointed as investors might now have wished. "In each case, GT further advised the audit committee that these internal control deficiencies did not affect GT's unqualified report on the Audited Financial Statements," the Global Crossing filing indicates. For its part, Global Crossing says Grant Thornton did not flag any problems with access costs.
Still, shares of the restructured undersea network operator have fallen 50% this month as investors brace for another accounting probe and restatement. Global Crossing stock was unchanged in midday trading Thursday. Global Crossing filed for bankruptcy protection in January 2002 amid a swirl of accounting questions, a Securities and Exchange Commission investigation and the dramatic decline in the telecom industry. The company emerged from bankruptcy on Dec. 9 with the financial support of Singapore Technologies Telemedia. A large Mexico-based investor, thought to be Carlos Slim, has been actively buying blocks of shares helping to support the price. This has also given some investors reason to think the company may find new financing to sustain operations, if ST Telemedia withdraws its offer for an additional $100 million in support. But some analysts and industry observers caution that the industry is still caught in a downdraft of price erosion, making it difficult for even stronger players like AT&T ( T) and Qwest ( Q) to stabilize their businesses.