The installation of SAP financial software at a major London-based container transport firm exposed flaws in its legacy accounting systems and processes, unveiling a gap in its accounts of £23m for the past two years.
Earlier this month, CP Ships announced that the SAP software implementation had delivered new visibility into its financial operations and that its earning would have to be revised.
The firm issued an alert on 9 August that it was postponing the release of its second-quarter results for a week and restating its 2002 and 2003 finances, as well as those for the first quarter of 2004.
"The implementation [of SAP] has revealed some deficiencies in former systems and related business and accounting processes, for which corrective action has been taken and continues," the company said. The flaws included underestimates of cost accruals and the need to write off some of its balances.
When the earnings were released two weeks ago, the biggest changes were to the company's 2003 numbers. For instance, the company reported that costs in 2003 had been underestimated by $20m.
The company noted that the SAP rollout itself led to delays in transferring financial information and processing cost data.
"This certainly was CP Ships' most challenging quarter since we were publicly listed, and with respect to the restatements, you should all know we feel ourselves we've let down our investors and let down ourselves," said CP Ships chairman Ray Miles.
The SAP system was initially rolled out to five of the company's seven lines of business in January, said chief financial officer Ian Webber, who noted that SAP had allowed CP Ships to improve financial reconciliation procedures and accounting visibility.
The realisation that a restatement needed to be done "didn't happen overnight", said Miles. The numbers appeared valid until July, in part because of the delays in processing company cost data. To ensure that the new numbers were valid, there was a "huge amount of activity" by the the company's audit committee to investigate and nail down the new, more accurate figures, he said.
Using the software, the company is working to strengthen its accounting organisation, including speeding up the processing of financial data and invoices, said Webber.
The entire company will be on a single operational and accounting system by early 2005.
CP Ships said that it does not expect the last phase of the rollout to result in "any significant transition issues" and that one of the remaining units is already running an earlier version of SAP.
"We're still in the process of completing the implementation," said a spokeswoman, adding that further comment would be a "bit premature".
Marc L Songini writes for IDG News Service