Adecco caught up in fresh storm over accounting

Adecco, the world's leading recruitment company, added its name yesterday to Europe's growing list of accounting scandals when it revealed that chaotic auditing had stopped it from completing its annual bookkeeping.

The Swiss-based company, which used to use Arthur Andersen, Enron's auditor, before switching to Ernst & Young in 2001, said it had uncovered "material weaknesses" in the internal controls of the company's North American operations during a routine audit of the company's finances.

It also said the resolution of other possible accounting, control and compliance issues in the company's operations in other, unspecified countries, was also delaying the completion of its annual audit.

The news wiped out nearly half the company's stock market value in early trading, reversing much of a near 50 per cent increase in the Adecco share price over the past year. Traders had been expecting Adecco to be a prime beneficiary of any improvement in the global economy, although that optimism was shattered by yesterday's statement.

Later in the day, the shares, which trade on the Swiss and New York stock exchanges, settled 35 per cent down as analysts absorbed the news.

The main problems appear to stem from audit problems in the US operations of Adecco Staffing, the group's biggest operating division, which accounted for 86 per cent of group turnover, equal to $20bn (£11bn) last year. It is run by Jerome Caille and specialises in providing workers for the car making, banking, electronics and telecoms industries.

The company said it did not expect the audit of its consolidated financial statements for the 2003 financial year, ended on 28 December, would be completed by its auditors by 4 February as planned. It said its audit and finance committee had appointed an independent counsel to investigate and determine the effect of the revelations on company finances.

At its last set of results Adecco had reported third-quarter net profit of €104m (£72m), up 30 per cent, as cost cutting offset weaker revenues. Investors are now waiting to find out how accurate these financial statements really were.

Adecco employs 28,000 people in 5,800 offices operating in 68 territories and was formed in 1996 by the merger of French company ECCO and Switzerland's Adla.