Baxter probe finds accounting errors leading to $276M in inflated income

The company said the "longstanding" approach to counting foreign exchange rate transactions was in place for at least 10 years. (Pixabay)

In a filing with the SEC, Baxter International disclosed that it may have overstated its income over multiple years, inflating it by about $276 million in total.

Following an internal audit and probe into its accounting measures, the medtech manufacturer said it found reporting discrepancies from 2016 through the first half of 2019—including by as much as $117 million in 2017, or 9.6% of the $1.217 billion in operational income before taxes the company reported that year.

Baxter estimated that other years saw misstatements totaling $40 million in 2016, $77 million in 2018 and $42 million for 2019’s first two quarters. The company said it plans to file revised and corrected annual and quarterly financial statements to the SEC no later than March 31.

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The problem stemmed from intra-company transactions made under a “previous exchange rate convention to generate non-operating foreign exchange gains and avoid losses,” the company said, and that the “longstanding” approach had taken place for at least 10 years.

Baxter described the convention as not consistent with U.S. Generally Accepted Accounting Principles, or GAAP. The company’s stock price dipped by about 2% over the three-day Presidents Day weekend, after the news broke.

The investigation was first launched and made public in October of last year, in consultation with the accounting firm PricewaterhouseCoopers and the audit committee of Baxter’s board of directors.

In its filing, Baxter stated that certain consolidated financial statements and “the related audit and interim review reports of PwC should no longer be relied upon because of misstatements to the Company’s previously reported foreign exchange gains and losses.”

The company also said it believes its internal investigation is now “substantially complete.”

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