The reserve for doubtful accounts, meanwhile, was $700,000.
Neither did the company add to reserves for doubtful accounts, the former employee said.
They said that auditors might be less willing to give in to managements and approve doubtful accounting if they knew a new audit firm would be reviewing the decisions.
The Justice Department and the S.E.C. are investigating issues, including how Friedman's treats doubtful accounts, to determine whether the company issued false financial statements, Friedman's said last month.
Raise its allowance for doubtful accounts between 1997 and 1998 by 6%, while its accounts receivable grew 36%.
On Sept. 30 the company had $45.5 million, or 30% of its gross receivables, reserved for doubtful accounts.
What's more, the company lowered the allowance for doubtful accounts by $2.4 million, despite receivables shooting up by $45 million.
Excluding special items like severance packages and doubtful accounts, the company earned $0.82 per share, beating forecasts calling for earnings per share of $0.76.
According to the company, only $14 million was allocated for "doubtful accounts," and that its would submit an 8k filing to the Securities and Exchange Commission.
Turns out Krispy Kreme may have leavened profits in the way it accounted for the purchase of franchised stores and by failing to book adequate reserves for doubtful accounts.
