Dillard's Fires PWC After Accounting Dispute, Hires KPMG as Auditor

Dillard's Fires PWC After Accounting Dispute, Hires KPMG as Auditor
Dillard's Inc. of Little Rock has fired its auditor, PricewaterhouseCoopers LLP, over a dispute involving the retailer's plan to move its real estate into a subsidiary.

Dillard's told the Securities & Exchange Commission last week that the two companies couldn't agree on when the tax benefit related to its new real estate investment trust should be recognized. The Internal Revenue Service agreed with Dillard's, which has since hired KPMG LLP.

Dillard's announced it was creating the REIT in a brief filing with the SEC on Jan. 19, but offered few details about it.

The announcement improved Dillard's (NYSE:DDS) stock price. It closed at $37.54 on Jan. 19, and the REIT was announced after the close. The next day, Jan. 20, it closed up almost 12 percent at $41.96. It was trading just below $49 on Thursday morning.

In the Oct. 6 filing, Dillard's said it created the REIT "in order to enhance its financial flexibility by providing additional sources of liquidity." But Dillard's thought the tax benefit tied to the transfer of assets, which Dillard's estimated at $135 million, should be claimed in future earnings periods while PWC thought it should be reported in the current fiscal year.

Dillard's "believes it has been diligent in its research regarding the proper accounting for this transaction and feels strongly that its view is permitted under generally accepted accounting principals," the Oct. 6 filing said.

In May, Dillard's asked the IRS for an advisory opinion, and the IRS agreed with Dillard's. Dillard's audit committee then started looking for a new accounting firm and hired KPMG LLP on Oct. 6.

Dillard's had originally hired PWC in May 2009 after using Deloitte & Touche LLP for more than 20 years.

Dillard's also has had disagreements with other financial officers. In 2008, it had a dispute with CDI Contractors LLC's chief financial officer, John Glasgow.

At the time, Dillard's owned half of CDI. It has since bought the half that it didn't own.

Glasgow objected the way Dillard's CFO James Freeman was conducting an audit of CDI. Glasgow disappeared during the dispute and was declared dead more than three years later, although no trace of him has been found.

After Glasgow's disappearance, Dillard's restated earnings for several previous years, blaming an accounting error by CDI.