Healthy Revenue – MMM Good.
January 11th, 2011 by Darrin Poole
Over the next several weeks, companies are feverishly working to put 2010 officially in the books. It’s an interesting time for all corporations who must deal with issues like revenue recognition. It’s similar to the “silly season” for auto racers and “black Monday” for professional football coaches. Who’s in? Who’s out?
For corporate auditors, it can be a rather somber time. Think about how the folks at Campbell’s Soup felt with they discovered that the sales team offered deep discounts to customers who already had enough product in their inventory. Doesn’t sound like that big of a deal but, the attorney’s in the subsequent class action suit* wrote, “although the customer paid for the product, the revenue recognized on these transactions was improper and in contravention of the Generally Accepted Accounting Principles. Due to unprecedented level of loading, Campbell’s was unable to reasonably estimate the amount of returns.” Ouch!
Now if Norman Rockwellish Campbell’s Soup has issues with revenue recognition, then what must the rest of corporate America be facing? So many rules. So few resources to monitor them all.
What is clear is that companies who ignore compliance with regulatory rules could find themselves restating their earnings — and facing lawsuits and waning stock prices.
In our blog, It Count. No It Doesn’t, we wrote about this issue of sales vs. compliance departments. But the issue isn’t just about the interactions between sales and compliance teams. It’s really more a matter of structured systems and automated business policies that ensure everyone is doing the right thing.
Campbell’s Soup auditors will no doubt have new rules in place that directly govern deep discounting. This type of rule evolution should be automated and streamlined within the sales contract process so that there are no future “situations.” This really should be the case for all rules and obligations. The contract process should reflect them across the contract lifecycle.
This type of rigor and compliance means no surprises. And people like Norman Rockwell, CEOs, CFOs, and auditors love that.
If you’d like a rules-driven, revenue recognition solution to complex contract management problems, click here to contact us and schedule a product demonstration.
*As previously reported, ten purported class action lawsuits were commenced against the company and certain of its officers in the United States District Court for the District of New Jersey. The lawsuits were subsequently consolidated, and an amended consolidated complaint was filed alleging, among other things, that the company and certain of its officers misrepresented the company’s financial condition between September 8, 1997 and January 8, 1999, by failing to disclose alleged shipping and revenue recognition practices in connection with the sale of certain company products at the end of the company’s fiscal quarters in violation of Section 10 (b) and 20 (a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The actions seek compensation and other damages, and costs and expenses associated with the litigation. The company believes the action is without merit and intends to defend the case vigorously.
