Asked to explain its use of recency accounting, Signet defended the approach, stating
that it believes it “provides a more accurate reflection of its customers’ performance relative to the ultimate collectability of the customer account.” Further, it said its loan loss allowances took into account not just the age of the debt, but also “facts and circumstances specific to each of our account holders, macroeconomic trends and information, and other qualitative factors.”
Mr. Ryan disputed this argument, flatly noting in a recent report
that Signet’s use of the recency method “does not give an accurate portrayal of the credit quality of the portfolio.”
I asked Mr. Bouffard, Signet’s spokesman, why the company doesn’t tell its shareholders
how different its delinquency calculations would be under the stricter approach.
That’s because it uses an unusual — and lenient — accounting method
that minimizes delinquencies and makes a loan portfolio appear to be performing better than it would under a stricter approach.
When assessing delinquencies among its in-house loans and setting up loan loss provisions, Signet uses the so-called recency accounting method.
Signet’s use of recency accounting versus the more conservative method came up last fall in a letter from the Securities and Exchange Commission.
Every 1 percent of sales supported by the in-house financing program contributes about
4 percent of the company’s pretax profits, Mr. Ryan told clients in a note last fall.
In recent research reports, William Ryan, an analyst at Compass Point Research & Trading in Washington, D. C., expressed concerns
that Signet is relaxing credit standards to plump up sales.
