Kevin Reed, Accountancy Age, Wednesday 18 August 2010 at 12:50:00

Deloitte's auditor resignation at American Apparel interests marketregualtors

US fashion retailerAmericanApparel has received a federal subpoena and is also underinvestigation by the Securities and Exchange Commission relating to thecircumstances of its change in auditors.

The US Attorney?s Office for the Southern District of New York submitted asubpoena to the company after Deloitte resigned just one year into its work withits audit client. American Apparel's former auditors Marcum have replacedDeloitte.

The SEChas also contacted Apparel to investigate the matter, the companysaid in its quarterly filing to the US stock exchange today.

In response, Apparel said that no further events require disclosure inrelation to the periods through to the date that its financial statements wereissued.

Apparel revealed that it incurred a "substantial loss" from its operations inthe three months ended 31 March 2010, and may not have sufficient liquidity tosustain operations for the next 12 months.

It was probable that it would break a covenant with UK lender Lion Capital,which in turn could stop the retailer from borrowing under its Bank of Americacredit agreement.

"Management continues to develop a plan intended to improve the operatingperformance and the financial position of the company," it said.

The plan includes lowering inventory levels by slowing production,potentially sub-leasing parts of its stores and store closures.

Further reading:

Deloittequits as auditor to American Apparel

AmericanApparel CFO steps down