H&R; Block Uncovers a Big Accounting Error: Its Own

Physician, heal thyself.

In an embarrassing disclosure for the nation’s largest tax preparer, H&R; Block Inc. admitted Monday that it had botched some of its own tax accounting.

The Kansas City, Mo.-based company, which handles tax returns for 19 million Americans, said it had overstated its profit by $102 million in 2003 and understated its profit by $11 million the next year.

In a filing with the Securities and Exchange Commission, Block said “a material weakness existed in the company’s internal controls over accounting for income taxes.”

Some of the largest revisions disclosed Monday stemmed from accounting errors in the tax treatment of Block’s 1999 acquisition of discount brokerage Olde Financial Corp.

“How poetic, right?” said Robert M. Bushman, a forensic accounting professor at the University of North Carolina.

In Block’s defense, Bushman said that a few of the mistakes involved “incredibly difficult accounting issues.” As for the Olde Financial deal, he said: “Although this is a difficult area, this is the basic bread and butter of M&A; accounting and they just blew it.”

Linda McDougall, a Block spokeswoman, didn’t return a call for comment.

Block shares fell 36 cents to $56.60, although the stock is up 15.5% this year.

Continuing its acquisition binge, Block said Monday that it would buy American Express’ tax and business services unit for $220 million.

Block announced the American Express deal on its Internet site, but as of Monday evening the site gave no word of the updated SEC filing. It did carry a news release offering to help taxpayers “catch costly errors on previously filed returns.”