SOX 404 reviews acquire have some muscle

["Miklos A. Vasarhelyi" <miklosv@andromeda.rutgers.edu>]

UPDATE: FindWhat.com Down After Auditor Resigns


DOW JONES NEWSWIRES
May 3, 2005 6:55 p.m.

(Updates with comments from FindWhat's president in the fourth paragraph.
Also updates stock price.)

   By Chris Reiter
   Of DOW JONES NEWSWIRES

NEW YORK -- Shares in FindWhat.com Inc. (FWHT) fell 26.3% Tuesday
on news that the online marketer's auditor resigned and cited flaws in
the company's financial controls.

In a filing with the Securities and Exchange Commission late Monday, the
Fort Myers, Fla., company said auditor Ernst & Young LLP informed the
company of its intention to resign after completing its review of
FindWhat's first-quarter earnings.

The exact reasons for Ernst & Young's decision were unclear. But in
the filing, FindWhat said the accounting firm identified six
"material weaknesses" in FindWhat's financial controls and
disagreed with management over a $1.1 million goodwill charge in 2004
related to its acquisition of Miva Corp.

"Ernst & Young have audited our numbers, and they have no issue
with those numbers," FindWhat President and Chief Operating Officer
Phillip Thune told Dow Jones Newswires. "They have reviewed our
internal controls and passed on that."

Ernst & Young declined to comment, citing confidentiality
agreements.

Pacific Growth Equities, which makes a market in FindWhat.com shares,
lowered its rating on the company's stock to underweight from equal
weight.

The downgrade reflects "ongoing concerns about FindWhat's ability to
maintain/grow market share in the face of stiffening competition as well
as new concerns related to material disclosures by management in recent
filings with the SEC," Pacific Growth analyst Derek Brown said in a
note.

Brown didn't say in the note whether he owned shares.

Shares in FindWhat, which have crumbled 70% in the last six months,
closed down $2.04 to $5.71 on volume of 5.9 million, compared with
average daily volume of 663,000.

Companies and auditors have been parting ways more frequently in recent
months than in the past as tighter accounting rules and higher fees
strain relationships.

According to the FindWhat's SEC filing, Ernst & Young saw plenty of
room for improvement in the company's financial controls.

The list included deficiencies related to purchase accounting, goodwill
impairment, revenue recognition, personnel resources and technical
accounting expertise, the review process for quarterly and year-end
financial statements, and segregation of duties.

"That's quite a list of control deficiencies," said Rick Antle,
an accounting professor at Yale University. "I don't recall seeing
such a long and detailed list before."

FindWhat offers services that help companies increase their Internet
traffic through targeted keyword searches. The company faces mounting
competition from larger players such as Google Inc. (GOOG). It's also
facing patent infringement claims from Yahoo Inc. (YHOO).

FindWhat is due to announce first-quarter results on Thursday.

-By Chris Reiter, Dow Jones Newswires; 201-938-5244;
chris.reiter@dowjones.com

Miklos A. Vasarhelyi
KPMG Professor of AIS
Director RARC / CARLAB
Rutgers University
315 Ackerson Hall
180 University Avenue
Newark, NJ 07102
(973) 353 5002
(201) 454 4377 (cell)
http://raw.rutgers.edu/mik los