A potential conflict?

April 6, 2006

Buried in the K that Hertz (former ticker:HTZ) filed yesterday was an interesting disclosure about an informal investigation by the SEC’s Division of Enforcement. It seems that regulators are wondering whether Hertz’s auditors, PwC, were sufficiently independent from the company because PwC rents a lot of cars from Hertz. Just to remind you, Hertz was spun-off from Ford Motors (F) in late December in a $15 billion deal.

Though it’s hard to know exactly what to make of this disclosure, it seems like it could open up an interesting line of inquiry. After all, those same PwC employees who are renting cars also need a hotel to stay in and food to eat, and those hotel and restaurant companies undoubtedly use the auditing services of PwC, or one of its competitors. In the filing, Hertz said that its audit committee discussed the situation with PwC and that PwC said that renting cars — presumably a lot of cars — didn’t impact its independence. But as Hertz also notes in the filing, if the SEC finds otherwise, "our filings with the SEC which contain consolidated financial statements for such periods would be non-compliant with applicable securities laws", which the company said could be material.

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