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SAP installation leads to CP Ships restatement

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25th Dec 2005
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International maritime group CP Ships recently revised its reported revenues for 2003 downwards by $29m after a installing a new SAP accounting system.

The shipping company made further adjustments of $12m to the figures reported for 2002 and the first quarter of 2004. In a statement documenting its accounting difficulties, CP Ships explained that there are several million individual cost components it accounts for the containers it moves each year. Some of the costs are certain at the time the movement occurs, others have to be estimated. Changes in customer requirements and voyage schedules also have to be considered.

During the fourth quarter of 2003 and into the first quarter of 2004, the company's routine adjustments to monthly cost accruals were not sufficient to cover the eventual costs. The underestimates were not identified, the company said, partly due to weak controls and partly as a result of the transition to the new SAP accounting system.

The SAP system went live for the majority of the business on 1 January 2004. Preparations started in late 2002 and continued throughout 2003 and into 2004.

"The demands on the finance and related business functions increased significantly during this period and certain of the processes and controls required to make reasonable estimates of accruals were affected as a result," the company said.

While the implementation proceeded, the finance department was unable to update the cost estimates because of delays in the transfer of cost information from operations. There were also delays in processing actual cost data. These control issues occurred
when the company was introducing new services and experiencing higher than anticipated fuel costs and suffering currency losses from the weakening US dollar.

Although the SAP implementation contributed to the underestimates, CP Ships said that the new software helped to identify the need for the adjustments by improving the reconciliation procedures for account balances and improving controls over intra-group transactions.

The new reconciliation processes identified balances totalling $8m that should not have been retained on the group's balance sheet but charged to income. Some $3m originated from intercompany revenue recharged between group companies in 2003, with other balances totalling $4m arising in 2003 and $1m in the first quarter of 2004.

"The implementation of SAP is a major step forward in financial control," the company said. "We have also taken a number of corrective measures to improve the controls in accounting and business processes, in particular those involving the recording and monitoring of accruals for costs and the review and reconciliation of balances."

The statement also noted that the company was a ware of class action lawsuits filed against the company and its officers.

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