Lasmo's allegations spark Enterprise investigation: Accounting board looks into claims of irregular auditing

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THE Accounting Standards Board is to investigate claims by Lasmo that its rival Enterprise Oil persistently inflated profits through irregular auditing.

The allegations were timed to coincide with today's extraordinary meeting of Enterprise shareholders to consider their company's pounds 1.4bn bid for Lasmo.

Enterprise said it was outraged at Lasmo's suggestion it had breached accounting standards.

KPMG Peat Marwick, Enterprise's auditor, has signed off the accounts without question for the past 10 years. The firm's public response was to dismiss the claims as irrelevant, though privately it was said to be extremely angry.

Lasmo, and its auditor Ernst & Young, drafted in Coopers & Lybrand to help prepare a report on Enterprise's accounts. They allege Enterprise's accounting treatment of major acquisitions inflated profits by pounds 240m over the past five years. A benefit of a further pounds 400m is still to come.

The report says Enterprise's accounting policies are unique among its UK oil and gas peers and invalidate proper comparisons. If Lasmo had adopted the same accounting methods its pre- tax results would have improved by pounds 160m over five years.

Lasmo's claim centres on the difference between acquisition and merger accounting. In the late 1980s, Enterprise bought Beryle Properties and Texas Eastern for pounds 600m. Lasmo says that instead of treating the purchases as acquisitions and recording the full asset value of pounds 600m in the accounts, Enterprise treated them as mergers and booked only pounds 65m. One result is that depreciation charges are significanlty lower.

In the US, where accounting standards are more rigorous, Enterprise booked the purchases as acquisitions. Lasmo said US and UK rules are the same, requiring assets purchased to be recorded at the prices paid for them. Enterprise says it could have recorded the assets either way in the UK and chose 'a more prudent' method.

Andrew Shilston, Enterprise's finance director, said: 'It is just not on to accuse a Footsie 100 company of accounting breaches and we have been thinking hard how we can restore honour.' Legal action had been considered, but was unlikely.

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