In what sources are calling an odd and mysterious situation, Irwin Financial Corp. said in a 8-K filing with the Securities & Exchange Commission that Deloitte & Touche resigned as its auditor because the firm was unwilling to accept Irwin's seemingly more conservative approach to securitization revenue income recognition.
As of press time, officials at both firms had not returned phone calls.
Irwin states that it has historically delayed the recognition of revenue from securitizations with recourse provisions until the provisions expire. This means that the company does not record sale income on certain deals until it is no longer obligated to buy back defunct assets specified by the deal criteria.
Cited from the filing: "Deloitte was offered the opportunity to accept the Registrant's position as to the treatment of its financial statements or to resign. On June 22, 2001, Deloitte resigned as the Registrant's independent accountants."
Irwin has since rehired PricewaterhouseCoopers as its accountant. Notably, Irwin had just switched to Deloitte from PWC in early May. The company had been with PWC for 13 years.
What is so strange is that, of late, securitization accounting firms are said to be tightening up from regulatory pressure, while trying to maintain clients, who would like their firms to be less conservative in sale accounting, one source noted.
Irwin Chief Financial Officer Greg Ehlinger said during a conference call that the company's review of the appropriate accounting procedure under Financial Accounting Standard 125 has been resolved.
"The revenue treatment we used in 1999, 2000 and in the first quarter press release with regards to the securitizations that contain recourse provisions is the appropriate accounting for this issue," Ehlinger said.
Unrelated to the securitization issues, Irwin expects to take a $2 million charge associated with the reclassification of a minority interest in Irwin's home equity subsidiary to a compensation expense.
"The compensation charge is a non-cash item, which caused a portion of our liability to mark to market, rather than shown as book value," Ehlinger said.
Up until the first quarter, the company had been booking the liability as a compensation expense but then modified the arrangements with the shareholders, such that the company believed at the time the interest should be accounted for as minority interest liability.