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A Penn West pump jack in Alberta. Penn West announced late on Tuesday that it has notified securities regulators in Canada and the United States about the issues, which include some entries that appear to reduce expenses.LARRY MACDOUGAL/The Canadian Press

One of Canada's largest energy companies, Penn West Petroleum Ltd., has unveiled details of accounting irregularities and launched a review of its financial statements dating back 4 1/2 years.

Calgary-based Penn West announced late on Tuesday that it has notified securities regulators in Canada and the United States about the issues, which include some entries that appear to reduce expenses. The company added that its historical financial documents for the period under review are not reliable.

Its shares slumped almost 11 per cent in early market action Wednesday.

The $5-billion oil-and-gas company said the voluntary accounting review could force it to reduce its budget and royalty expense expectations for 2014 and increase its operating cost predictions. This, in turn, would reduce the amount of money the company expects to take in.

The energy firm, which is already facing allegations of manipulating stock options, also said that restating financial results may mean it is violating the terms tied to its bank debt and other notes.

Penn West has informed the United States Securities and Exchange Commission and the Alberta Securities Commission about the review.

The Calgary-based company has also hired a forensic accounting firm.

"The audit committee and its independent advisers are examining certain entries which appear to have been made to reduce operating costs and increase the company's reported capital expenditures and royalty expense, and that appear to have been made without adequate supporting documentation," the company said in a statement.

So far, the committee has identified $70-million in operating expenses that it believes were improperly classified as capital expenditures in the property, plant and equipment category in 2013. Penn West did the same with $111-million in 2012, according to the committee's preliminary findings.

Operating expenses reflect what it costs to run the business quarter-to-quarter. Capital expenses are directed toward assets and development projects, and these types of expenses do not immediately affect a company's income statement. The property, plant and equipment category contains assets and is subject to depreciation. As a result of the former accounting practice, this category appears to be overstated on the company's balance sheet.

About $100-million of operating expenses were also reclassified as royalty expenses in both 2012 and 2013, the audit committee of the board believes. Three board members are on the committee and all are independent.

The review is ongoing and Penn West said the numbers may change. The company has decided to restate its audited financial statements and other documents for 2012 and 2013. Unaudited results in 2014 and 2013 will also be rewritten.

"As a result of this decision, the company's historical financial statements and related audit reports and [management discussion and analysis] should not be relied upon," Penn West said.

Its second-quarter results may be delayed because of the review.

Penn West did not say which employees are "believed responsible" for these accounting practices, but noted they are no longer working for the company. The review arose from information brought to the attention of chief financial officer David Dyck, who started on May 1, taking over from Todd Takeyasu. In an interview, Mr. Takeyasu said the committee's concerns could be a result of different interpretations of accounting methods.

"Some of this stuff is grey, but I'm probably not at liberty to say much," he said. "Some of that is possibly a matter of documentation."

He added: "The new people might just have a different view of it."

New board members and executive officers may have a "will to do things slightly differently," he said.

The company installed David Roberts as its chief executive last June. He replaced Murray Nunns. Bill Andrew was in charge before Mr. Nunns's appointment in 2011. Mr. Nunns did not return a message seeking comment. Mr. Andrew did not return a message left at his office at Long Run Exploration Ltd., where he is chief executive.

Rick George, Penn West's chairman, said in the press release the company acted "quickly and effectively" to review its accounting methods. "We will take the steps necessary to correct our historical financial statements and we will take appropriate steps to ensure that we avoid a similar situation in the future."

Penn West "will not be available to provide further comment" on the statement detailing the review, according to representative of Longview Communications Inc., a public relations firm often involved in crises.

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