Auditor Says It Urged Wider Probe of Premier

Premier Laser Systems Inc.’s former auditor said that it recommended an internal investigation into the company’s finances for its last fiscal year be expanded to include questionable transactions in early 1997 as well.

The maker of dental and medical lasers did not follow that advice, prompting Ernst & Young to resign as Premier’s auditor last month, the accounting firm said in documents filed with the Securities and Exchange Commission.

The Irvine firm’s explanation was in response to Premier’s account of Ernst & Young’s resignation that was filed earlier this month with the SEC.

Premier has been on a slide since mid-April, when it said its revenue for its fiscal third quarter ended Dec. 31 would be restated, and its revenue for the fourth quarter ended March 31 would be lower than expected, after subtracting a total of about $7 million that it had booked as sales to a major distributor, Henry Schein Inc. in Melville, N.Y. Schein said it never ordered the lasers in question.

In its letter, Ernst & Young said that by April 21 it had concluded that $2.4 million of Premier’s reported revenue for its fiscal third quarter was inappropriate and that the financial statements for the period should be revised. It said it discovered that Premier was logging revenue for dental lasers that had been sent to a freight forwarder even though the distributor said it did not order the items.

The accounting firm recommended that a committee of independent directors and attorneys be formed to investigate into transactions in the first three quarters of fiscal 1998 and the previous fiscal year. Ernst & Young said it identified “specific revenue transactions recorded on or about March 31, 1997” that prompted it to recommend the broader investigation.

In its SEC filing, Premier said it was willing to expand the investigation, but that the committee had been limited, in part, because it didn’t have “timely and complete access” to Ernst & Young’s paperwork.