Have you heard of the ATLAS COLD STORAGE saga? Here is a summary:
Atlas is an income trust that specializes in the storage of frozen goods for food companies such as Loblaws. Atlas was growing via acquisitions. Unfortunately, "creative" accounting was used to account for these transactions. Here is how we understand it as an example. Suppose that you own a storage house and that Atlas offered $2 million to buy you out. You agree but would accept if a $200,000 was given as a departure bonus. Atlas accepts your counter offer. So far, so good. However Atlas accounted for that purchase as an acquisition of $2.2 million and depreciated it over many years. According to general accounting rules, Atlas should have booked this operation in 2 steps: a purchase of $2 million amortized over many years and an expense of $200,000 the year of the acquisition. This "aggressive" accounting therefore increases the distributable income to unit holders.
Yes, Atlas made an error but what we wonder is how come Ernst & Young (it could have been another auditor!) missed this obvious accounting procedure for the past 3 years. Some might say that auditors can't check everything. True, but not in this case. Atlas does not have the mega structure à la "BCE" or "Power Corp" where one has to rely more on the honesty of the management team. Even more, Atlas' growth by acquisition was not a one shot deal, it was its long term strategy.
The irony is that Atlas will now have to pay Ernst & Young big fees to restate the past financial statements!
This being said, we are now accumulating this unit trust as most of the cockroaches are out. After all, Atlas operates a true business. Once the dust settles, we could see the security around $9. It now trades at $6.35.