Games Sector Under Fire

The video games sector was sent reeling on Wall Street yesterday after the industry became the latest focus of inquiries into possible accounting irregularities.

Several of the biggest companies in the business admitted late on Friday that they had become subject of a formal inquiry by the securities and exchange commission, the US financial watchdog. The investigation is understood to be focusing on how the publishers recorded revenues from game sales between the late 1990s and 2002. Shares in Acclaim Entertainment, the firm behind the Turok series, fell by more than 7% in early trade to 63 cents. THQ, which sells children's titles, including Spongebob SquarePants, were down by nearly 10% at $15.93 and Activision, maker of X-Men and Spider-Man titles, was over 9% lower at $11.30.

The inquiry appears to have stemmed from an investigation into Take-Two Interactive Software, the games maker behind the controversial hit Grand Theft Auto. Last year the company restated seven quarters of earnings following an internal review of its books. In one instance, Take-Two was forced to rub out $15.4m (£9.7m) in revenues it had booked from game sales to independent distributors, because the products were later returned to the makers.

The broader inquiry is expected to focus on at what point in the distribution process the games publisher books a sale and whether reserves set up to cover returns of unsold product are used to smooth out revenues.