Aurora’s CEO, Top Execs Quit Amid Accounting Probe

Aurora Foods Inc. Chairman and Chief Executive Ian Wilson and other top executives unexpectedly quit Friday as the company’s board formed a committee to investigate accounting at the maker of Duncan Hines baking mixes and Celeste frozen pizza.

The committee is investigating trade-promotion expenses last year and conducting a broader review of accounting practices for earlier periods, the company said.

The Aurora board also accepted the immediate resignations of James B. Ardrey, vice chairman; M. Laurie Cummings, chief financial officer; and Ray Chung, executive vice president.

San Francisco-based Aurora will take a noncash charge against last year’s earnings that will result in a “material reduction” and possibly a loss for the full year. Profit forecasts for this year also are under review, it said.

“This is a classic textbook case of accounting problems that lead to management’s downfall,” said analyst David Goldman at Banc of America Securities, who rates Aurora shares “market perform.” “The problems only come to light when the auditors and management come to a significant disagreement. When that happens, the auditors have to prevail.”

Trading in Aurora shares never opened on Friday. They closed off 13 cents at $7.31 on Thursday.

“Companies get into difficult situations when they try to bolster sales by raising promotional activity and consumer demand is not there,” said Goldman Sachs analyst Nomi Ghez, who rates Aurora shares “market perform.”

Food makers often give promotional deals to retailers to try to boost sales. In some cases, grocers are offered lower prices if they sell a certain amount of a company’s products.

There are no strict guidelines governing when companies account for those expenses, Goldman said.

Aurora’s board appointed directors as acting chairman, vice chairman, president and chief executive.

Aurora expects to provide further information about the charges and a full earnings announcement by the end of March.