Overstock CEO Escalates Battle with Grant Thornton

The dispute between Overstock.com and Grant Thornton heated up after the Internet retailer’s chief accused the firm of “inconsistencies and inaccurate statements.”

Overstock.com chairman and CEO Patrick Byrne released a letter last week in response to an SEC filing from Grant Thornton. The Salt Lake City-based company dismissed the firm as its auditor earlier this month and filed an unaudited version of its third-quarter financials (see Overstock CEO Objects to Grant Thornton Audit). The dismissal came after Grant Thornton advised Overstock to restate its 2008 financials in order to record an additional $785,000 in assets stemming from an overpayment to a business partner. The firm wrote to the SEC to give its side of the dispute.

“The company brought the overpayment to a fulfillment partner to Grant Thornton's attention in October,” said a letter from the audit firm. “After additional discussions with the company, the predecessor auditor and receipt of additional documentation from the company we determined that the company’s position as to the accounting treatment for the overpayment to a fulfillment partner was in error.”

Byrne denied the firm’s contention. “This is a falsehood,” he wrote. “On several occasions Grant Thornton discussed with and provided guidance on the accounting for the $785,000 fulfillment partner overpayment during and prior to October.”

Byrne claimed that the local Grant Thornton engagement partner told his company on October 14 that the local Grant Thornton engagement team had held conference calls with Grant Thornton’s regional and national offices to review the accounting treatment for the overpayment recovery, and had determined that the accounting treatment was “not unreasonable.” However, after the company received a letter from the SEC on Nov. 3 questioning the accounting treatment, the firm took the position that Overstock had improperly accounted for the partner overpayment recovery.

“To us, it appears that either the Grant Thornton local office was overruled by its regional and national offices, or Grant Thornton became concerned that the SEC would review its conclusions, and only then did Grant Thornton decide to disavow its previous advice,” said Byrne. He also disputed the firm’s contention that it had told the company to make a disclosure to prevent future reliance on its Q1 or Q2 2009 financial statements. 

“We are surprised by these inconsistencies and inaccurate statements in Grant Thornton’s November 20 letter to the SEC,” Byrne added. “I take them as proof (as though further proof were needed) that our audit committee made the correct decision to dismiss Grant Thornton.”

Grant Thornton declined to comment on the matter to WebCPA. “As a matter of professional standards and firm policy, we do not comment on the work provided to clients beyond information required by the SEC, and believe our services complied with professional standards,” said a statement from a Grant Thornton spokesperson.