DeLaurentiis Charged With Poor Accounting

Federal regulators, continuing their scrutiny of movie industry accounting practices, have charged financially troubled DeLaurentiis Entertainment Group Inc. with failing to maintain adequate accounting records and controls after it went public last year.

The Securities and Exchange Commission said the violations resulted in improper accounting for interest, selling, general and administrative costs for the six months ended Aug. 31, 1986.

DeLaurentiis agreed to settle the matter--without admitting or denying guilt. As part of the agreement, the film company will prepare a written statement of its accounting policies and procedures for capitalizing and expensing certain costs, and hire independent accountants to review those policies. Under terms of its settlement, DeLaurentiis is required to submit the statement to the SEC within 60 days.

“We are pleased to reach a settlement with the SEC on this issue and believe that implementing the required procedures will strengthen our existing system of internal controls,” said Peter Ratican, the film company’s senior vice president for finance.

Latest Disclosure

Monday’s announcement is the latest disclosure in a series of reports of entertainment firms whose accounting practices have come under scrutiny by the SEC.

For nearly a year, the SEC has been investigating Los Angeles-based Cannon Group Inc. for the way it reported its film amortization costs. Also under review are its record-keeping and internal accounting systems. Cannon also has been sued by shareholders for allegedly overstating its earnings figures.

In May, Orion Pictures said it would comply with an informal SEC request to provide “certain data relating to writedowns taken for the fiscal year ending Feb. 28, 1986.”

“At first blush, the DeLaurentiis disclosure doesn’t seem that much different from what we’ve seen coming out of Cannon, and it’s indicative of problems with Hollywood accounting in general,” said one Wall Street analyst. “Accounting in the motion picture production industry is a moving, mystical target. Now the SEC is saying, ‘halt, we don’t like these practices.’ ”

An SEC official said the DeLaurentiis and Cannon actions are “just a coincidence--there is no ‘Hollywood program’ that I’m aware of.”

According to an SEC order made public Tuesday, regulators determined that the various accounting errors by DeLaurentiis “substantially offset each other and, thus, did not materially affect DEG’s cumulative (1986) operating results.” The company has already restated the results to the first and second quarters of 1986.

The company was formed in 1985 by Italian-born producer Dino DeLaurentiis, who gained fame by making such big-budget productions as “King Kong,” “Conan the Barbarian” and “The Bounty.”

Since going public in May, 1986, DeLaurentiis has suffered a string of box office disappointments, including “From the Hip,” “Bedroom Window,” “King Kong Lives” and “Million Dollar Mystery.” The company has seen the price of its stock on the American Stock Exchange fall nearly $10 a share in the past year, closing Tuesday at $4.875, down 75 cents.