November 28, 2003
U.S. audit problems for PGS
Petroleum Geo-Services ASA, which emerged from Chapter 11 proceedings on November 5, 2003, is having U.S. audit problems that hinder it listing its American Depositary Shares.
PGS said today that it continues to experience delays in completing an audit in accordance with U.S. generally accepted auditing standards ("GAAS") of the its 2002 financial statements under U.S. generally accepted accounting principles ("GAAP") and a re-audit in accordance with U.S. GAAS of its 2001 U.S. GAAP financial statements.
Until the audit and re-audit under U.S. GAAS are completed, PGS will be unable to file an annual report that contains audited financial statements for three full fiscal years. For so long as this condition exists, the company will be precluded from, among other things, listing its American Depositary Shares on a U.S. national securities exchange or on the Nasdaq Stock Market. A delay in listing of the Company's ADS's in the U.S. may have a negative impact on their liquidity. PGS is in compliance with applicable Norwegian requirements with respect to its reported audited Norwegian GAAP Financial Statements for 2002.
Completion of the audit and re-audit under U.S. GAAS has been made more difficult by a combination of factors, including the demands of the recently completed Chapter 11 process and the organizational changes which accompanied that process, the need to implement "fresh start" accounting following emergence from Chapter 11 and preparation for the audit of the financial statements for 2003. In addition, in connection with the audit and re-audit process under U.S. GAAS for the 2001 and 2002 financial statements, the company's independent auditor, Ernst & Young, has issued a "material weakness" letter that identifies the following material weaknesses: (1) insufficient documentation of or adherence to policies and procedures; (2) inadequate U.S. GAAP expertise in the company; (3) insufficient support for accounting books and records; and (4) insufficient supervision and review control activities. These material weaknesses may also contribute to a delay in and make more difficult completion of the audit and re-audit.
In response to the material weakness letter, PGS has developed and is actively implementing a plan and timetable to address the matters identified by Ernst & Young, including hiring new personnel with U.S. GAAP expertise, improving overall U.S. GAAP expertise throughout the accounting organization and upgrading the corporate business controller function within PGS.
PGS says there can be no assurance as to whether or when the audit and re-audit described above can be completed. If and when completed the audit and re-audit could result in restatements of the company's previously filed U.S. GAAP audited financial statements and restatements of or other adjustments to its 2003 U.S. GAAP financial statements. Those restatements and adjustments could be material; however, whether positive or negative, they are expected to be of a non-cash nature and only have an impact on historical financial statements. Financial statements post "fresh start" accounting are not expected to be impacted. Furthermore, there can be no assurance that the audit and re-audit, although being conducted for U.S. GAAP purposes, will not have an impact on Norwegian GAAP financial statement.