The wire is abuzz with news that IBM is being investigated by the SEC for issues related to revenue recognition and the accounting treatment of certain transactions. We hear this story again and again from mid-sized organizations, and it amazes us that this is happening to an enterprise organization. The effect was enormous – IBM closed down 4% on the day at $137.86.
According to reports, here’s what little is known: “In August 2015, IBM learned that the SEC is conducting an investigation relating to revenue recognition with respect to the accounting treatment of certain transactions in the U.S., U.K. and Ireland. The company is cooperating with the SEC in this matter.”
To us, this is probably not about fraud at all. It’s much more likely that this is simply about what it says: “the accounting treatment of certain transactions.” This argues for a systematic approach to revenue recognition, which in turn argues for a system rather than spreadsheets.
There’s plenty of speculation out there right now about exactly what kinds of transactions are being investigated. Some authors are suggesting that this may be related to the convergence of the IFRS and GAAP standards. We think that this may very well be about multi-element arrangements, but it could also be about revenue timing and substantiation as well.
If you’re with a company that has complex revenue recognition requirements, this is a good time to ask some searching questions. For example, as a financial leader, how do you want your revenue managed? Do you want to count on error-prone spreadsheets and people-based processes – or a systematic approach to capturing each sale and formatting that sale for appropriate revenue recognition based on standardized rules and processes?
Revenue is the “glamour” number on financials, even more than profit. It is the number that companies take pride in, and seek to grow first. At the same time, nothing can hurt your ability to grow (raising capital and awareness with industry), to scale (lack of systematic processes), or to achieve employment success like errors with revenue recognition.
If IBM had known about Novadek’s Revenue Lens solution, would they still be in this pickle? Maybe, but we think not. Systematic processes built into an application like Novadek Technologies’ Revenue Lens help organizations eliminate data errors, reduce auditor’s fees and scale more quickly. Questions? Contact us any time.