SEC Criticizes Pre-Paid Legal Services' Accounting

By Carter, Ray | THE JOURNAL RECORD, July 26, 2001 | Go to article overview
Save to active project

SEC Criticizes Pre-Paid Legal Services' Accounting


The Securities and Exchange Commission's chief accountant has decided Pre-Paid Legal Services' accounting policies for commission advance receivables do not conform to generally accepted accounting principles, Ada-based Pre-Paid said Wednesday.

That opinion, conveyed in a July 24 letter to company officials, concurred with the prior staff opinions of the Division of Corporation Finance and Office of the Chief Accountant, and may impact a host of lawsuits filed against the company.

Pre-Paid officials said they are exploring what - if any - actions will be taken in response.

Randy Harp, Pre-Paid's chief operating officer, disagreed with the SEC opinion.

We continue to believe our current accounting policy is in accordance with generally accepted accounting principles, he said. Pre-Paid said its accounting policy reflects the economic reality of our business and clearly illustrates to our shareholders the progress of our business in a given reporting period.

How we eventually report our financial results does not change the cash economics of our business, it merely changes the timing of reported earnings, Harp continued. As noted in our May 16, 2001, and June 28, 2001, press releases, the SEC's proposed accounting would have a material adverse effect on the company's balance sheet and results of operations.

Based on preliminary estimates, Harp pointed out the firm's pro- forma earnings per share for the first quarter of 2001 would fall to 27 cents per share from 60 cents per share under Pre-Paid's policy. Fiscal 2000 results would drop to 81 cents from $1.92, and fiscal 1999 results would plunge to 57 cents per share from $1.67.

The SEC inquiry of Pre-Paid, the developer and marketer of legal expense plans, was initiated after numerous lawsuits were filed against the company and industry analysts criticized the company in a Wall Street Journal article.

That criticism centers on how the company classifies at least some of its sales commission payments as assets.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

SEC Criticizes Pre-Paid Legal Services' Accounting


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?