Merck scandal hits US futures - AFR article

Another accounting scandal involving a major American corporation sent US stock index futures sharply lower in Asian trade on Monday. US pharmaceutical giant and Dow component Merck is alleged to have booked $US12.4 billion ($22 billion) in revenue that was never received.

Monday's edition of The Wall Street Journal, citing a company filing to the US Securities and Exchange Commission on Friday, said Merck's pharmaceutical benefits subsidiary Medco recorded as revenue, co-payments collected by pharmacies from patients, even though it did not receive those funds.

Merck disclosed the accounting policy in April, but the SEC filing was the first disclosure of exactly how much revenue is involved, the newspaper said.

Merck says the policy has no effect on net profit, because it subtracts the exact amount as an expense, The Journal reported.

Merck faces a lawsuit alleging that Medco, which is due to make a $US1 billion initial share offer, used improper accounting methods to boost revenue.

A federal suit filed in New Jersey by shareholder Arnold Deutschl claims that the policy on co-payments violates Generally Accepted Accounting Principles.

The Merck revelations, coming on the heels of the Enron, WorldCom, Tyco and other accounting scandals, sent US stock index futures lower on Monday. The S&P-500 futures were down just under 1 per cent, while Nasdaq futures were off 1.8 per cent.