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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K (A)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 11, 1999
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WESTAR FINANCIAL SERVICES INCORPORATED
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(Exact name of registrant as specified in its charter)
Washington 2-95465-S 91-17115252
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
505 E. Union, #300, Olympia, Washington 98501
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (306) 754-6227
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(Former name or former address, if changed since last report)
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ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
In compliance with the requirements of Item 304 of Regulation S-K, the
Registrant makes the following disclosures with respect to a change in its
certifying accountants:
On March 11, 1999, Westar Financial Services Incorporated (the "Registrant")
dismissed the accounting firm of KPMG, LLP ("KPMG") and re-appointed the
accounting firm of BDO Seidman LLP ("BDO") as principal accountants for the year
ended March 31, 1999. The Registrant re-appointed BDO based on BDO's excellent
reputation, its prior experience with the Registrant, and its expertise in the
financial services industry. The Registrant's Audit Committee directed the
dismissal of KPMG and approved the re-appointment of BDO on March 11, 1999.
During the one fiscal year audited by KPMG and the subsequent interim period
prior to March 11th, there has been a disagreement with KPMG on one matter of
accounting principle, a reportable event and no disagreements on any practices,
financial statement, disclosure, or auditing scope or procedures.
Because Registrant had not demonstrated a history of profitability at March 31,
1998, KPMG made the judgment that the Company should establish a 100% allowance
for its deferred tax asset. The Registrant's Audit Committee discussed the
disagreement with KPMG on at least two occasions. The Company disagreed with
KMPG's judgment; with KMPG's use of a standard more restrictive than SEC
guidelines for determination of the need for an allowance; and, with KMPG's
decision to not weigh more heavily recent significant improvements in the
Company's volumes, operating margins and profits. The disagreement has been
resolved to KMPG's satisfaction and a 100% valuation allowance was recorded in
the annual report for fiscal year ended March 31, 1998.
By letter dated September 2, 1998, KPMG voiced its concern about the
documentation of a residual value guarantee. In early 1996, a residual value
insurance policy issued by an insurance company to the Registrant was replaced
with an assurance agreement for the same coverage from a third party. The
replacement agreement guaranteed the residual values for leases booked in
fiscal years 1996, 1997 and 1998. The leases were recorded as direct financing
leases. Prior audits of the related time periods were issued with an
unqualified opinion.
During its audit of fiscal 1998, KPMG requested copies of the residual value
insurance policy or the assurance agreement. Upon receiving written
confirmation from the third party the existence and terms of the assurance
agreement, KPMG concurred in the Registrant's classification of the leases as
direct finance leases.
Absent documentation of the residual agreement, the Registrant would have been
required by KPMG to report increased earnings in fiscal 1997 and fiscal 1998 of
approximately $115,000 and $45,000 respectively. No changes to the Registrant's
financial statements were made.
By letter dated September 2, 1998, the Registrant was advised by KPMG that the
lack of original, contemporaneous documentation available to support
management's accounting for leases was a deficiency in internal controls. No
internal control memorandum was prepared by KPMG for the Registrant. The
Registrant communicated the above to the Audit Committee and the Board of
Directors. The matter was raised in passing by KPMG in a meeting with the Audit
Committee. The Registrant has authorized KPMG to respond fully to inquiries of
BDO concerning the matter.
Neither BDO nor KPMG have recommended any changes to the Registrant's
documentation concerning direct financing leases during the audit periods. The
Registrant has adopted
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an internal control providing for the preparation of contemporaneous
memorandums of oral agreements.
KMPG's report on the consolidated financial statements for the last fiscal year
ended March 31, 1998 contained no adverse opinion or disclaimer of opinion and
was not qualified or modified as to uncertainty, audit scope or accounting
principles.
BDO's report on the consolidated financial statements for the previous fiscal
year ended March 31, 1997 contained no adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principles.
The Registrant provided the above disclosure to both KPMG and BDO, and
requested that KPMG furnish the Registrant with a respective letter addressed
to the Securities and Exchange Commission (the "SEC") stating whether they agree
with the above statements. A copy of KPMG's letter dated May 14, 1999 is
attached as an exhibit to this report.
ITEM 7. EXHIBITS
(c) Exhibits.
16.2 Letter regarding change in certifying accountant--KPMG LLP
KPMG Letterhead
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for Westar Financial
Services Incorporated (Westar) and, under the date of February 17,
1999, we reported on the consolidated financial statements of Westar
Financial Services Incorporated and subsidiaries as of and for the
year ended March 31, 1998. On March 11, 1999, our appointment as
principal accountants was terminated. We have read Westar's
statements included under Item 4 of its Form 8-K(A) dated March 11,
1999, and we agree with the statements that:
- There was a reportable event. Under letter dated September 2,
1998, to Robert Christensen, President, we informed Mr. Christensen
that in light of the lack of original, contemporaneous documentation
available to support management's accounting for leases, we believe
there was a significant deficiency in Westar's internal controls
which could adversely affect Westar's ability to record and report
financial transactions.
- There was a disagreement on one matter of accounting principle
and that disagreement was resolved to KMPG's satisfaction. We
disagreed with Westar's application of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, in
determining whether it was more likely than not Westar's deferred tax
assets would be realized. As indicated in the Form 8-K(A), a 100%
valuation allowance was established at March 31, 1998.
Very truly yours,
/S/ KPMG LLP
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KPMG LLP
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(c) Exhibits.
16.3 Letter of September 2, 1998 regarding status of the audit--KPMG
LLP
KPMG Letterhead
September 2, 1998
Private & Confidential
Mr. Robert Christensen
President
Westar Financial Services Incorporated
The Republic Building
P.O. Box 919
Olympia, WA 98507
Dear Bob:
This letter is in response to your fax dated September 2, 1998
regarding the status of our audit. As you know, we were
unsuccessful at reaching each other several times today.
As Cindy was aware, both Karen and I were on vacation last week.
Also, according to my calander, I did not receive permission and
information to contact Bob Kent at Banc One until August 25. Prior
to contacting Mr. Kent, I felt a professional obligation to sit down
with my SEC Reviewing Partner, share the various communications and
documents you provided me, along with your top notes, and get his
input in advance so that hopefully I would not have to disturb Mr.
Kent more than once.
Today, Karen and I spoke with Bob Kent, and he confirmed to us that
he, on behalf of Banc One, had agreed to provide Westar with a
residual value guarantee (to use your term, assurance), at the
inception of the warehouse agreement entered into in December 1995,
on all outstanding leases and leases originated subsequent to that
time. He noted that this guarantee was not in writing and was a
verbal commitment between Banc One and Westar. We asked Bob to
confirm to us in writing his understanding of the arrangement and he
has agreed to provide this to us no later than the end of tomorrow.
Assuming that Bob's written letter is consistent with our
conversation, I believe that we will have finally received
sufficient competant evidential matter supporting management's
assertions that the leases should be accounted for as direct
financing leases.
Bob, while we are pleased to have the information provided by Mr.
Kent, in light of the lack of original, contemporaneous
documentation available to support management's accounting for
leases, we believe there is a significant deficiency is Westar's
internal control which could adversely affect Westar's ability to
record and report financial transactions. We will be presenting this
and other observations in a more formal manner as part of
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our management letter process.
As I indicated to you when you told me you did not have time for
someone to find the original documents that apparently do not exist
related to this agreement, KPMG would take no further action related
to this audit until such time as the information was provided. We
are now in a position to proceed. Items that are still in process
included the completion of the tax provision, analysis of the
recoverability of the deferred tax asset and, given Westar's
financial position through August 31, an analysis of Westar's ability
to continue as a going concern. In addition, as Westar is a new SEC
client, our SEC Reviewing Partner must perform an in-depth review of
our audit workpapers and the financial statements in accordance with
Firm policy prior to release of our report. At this time, it is
impossible for me to give you an absolute date as to when we will be
complete with our work. I can only say that we will complete our
audit as expeditiously as possible.
Very truly yours,
KPMG Peat Marwick LLP
/S/ Robert L. Henarie
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Robert L. Henarie
Partner
Assurance
RLH:kjr
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTAR FINANCIAL SERVICES INCORPORATED
(Registrant)
/S/ R.W. Christensen, Jr.
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R.W. Christensen, Jr.
President
