BlackBerry Ltd. agreed to stop adjusting its income, an issue highlighted by MarketWatch in the past, after receiving a comment letter from the Securities and Exchange Commission questioning the practice.
The cybersecurity company BB,
previously best known for its self-titled and pioneering smartphone products, it highlighted non-GAAP revenue, or revenue that does not conform to Generally Accepted Accounting Principles, in first quarter earnings published in 2019 and beyond, using a metric which the SEC does not allow, as MarketWatch wrote at the time.
The Waterloo, Ontario-based company explained the move in a footnote, in which it said it had recorded “deferred software revenue acquired but not recognized due to business combination accounting rules of $ 20 million, from of which $ 19 million went into BlackBerry Cylance and $ 1 million went into IoT (Internet of Things). “
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In other words, you were adding revenue that would not be allowed under GAAP as a result of an acquisition. That’s important because the additional $ 20 million allowed the company to beat the FactSet consensus at the time, while its actual revenue figure was a mistake.
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“Taking into account that its deferred income and commission expenses were adjusted to fair value at the time of acquisition in accordance with GAAP, these non-GAAP adjustments intended to eliminate the impact of purchase accounting replace the measurement and recognition methods customized by GAAP, “the SEC wrote in its comment letter to BlackBerry. Companies cannot use individually tailored metrics when presenting financial results.
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BlackBerry responded that investors and financial analysts often seek information on software-acquired deferred revenue and software deferred commission expenses for modeling purposes. He also argued that others in his industry make similar adjustments, including companies he considers peers.
But it also agreed to stop the practice, saying the adjustments “tend to zero due to the time that has elapsed since their acquisitions.” BlackBerry will no longer offer non-GAAP revenue figures in its financial results reports, beginning with its fiscal year March 1 through February 28, 2022.
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Shares of BlackBerry fell 5.9% on Friday, but rose 40% in 2021, while the S&P 500 SPX,
has gained 4%.
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