The Great Atlantic & Pacific Tea Company (A&P) restated prior year earnings in a Form 10K filed with the Securities and Exchange Commission on July 5, 2002. Retail accounting experts say the company's prior accounting practices were aggressive, but not improper, and other retailers may make similar restatements.

In prior years, A&P had booked vendor allowances as profit before it actually received them. Going forward, it will record these allowances as it receives them, over the life of the contract with the manufacturer. Kmart restated earnings for the same reason in May 2002. Industry experts say the former method is an aggressive form of accounting that has been abandoned by most grocery stores over the past five to ten years. ("A&P Restatement Spotlights Retailer Accounting Concerns," Wall Street Journal, July 5, 2002.)

The adjustment reflects a change in accounting policy that may affect other retailers. The Wall Street Journal quotes one industry expert as saying he expects A&P won't be the last retailer to restate earnings based on new rules about vendor allowances. "It's a very complicated area of accounting that's only now getting a lot of attention," he said, adding that the case of A&P shows that such restatements often involve complex, detailed investigations of both written and oral agreements and can "take some time" before they're finished.

A&P's annual report was originally due in May, but was delayed to give the company time to fully investigate what it called "accounting irregularities." Following the investigations, adjustments were also made for an overstatement of perishable inventory, changes related to an actuarially-based method of estimating self-insurance reserves, and timing of recognition of sublet income associated with certain store closings.

The net effect of all these adjustments is to narrow the company's losses for fiscal years ending Feb. 23, 2002 and Feb. 24, 2001 and increase the company's profit for the year ended Feb. 26, 2000. A&P said there is no effect on cash balances or debt levels.

-Rosemary Schlank