Business Context and Reporting Period
Company: comScore, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: September 12, 2016
Subject: Non-reliance on previously issued financial statements due to accounting errors regarding nonmonetary transactions.
The Audit Committee concluded that consolidated financial statements for the years ended December 31, 2013 and 2014, and all quarters in 2015, should no longer be relied upon. The errors stem from the improper recognition of revenue and expenses for nonmonetary transactions, which should have been recorded at historical cost (zero) rather than fair value.
Key Financial Metrics and Adjustments
The filing provides preliminary estimates of adjustments to revenue, expenses, and operating income (loss) for the affected periods. All figures are in thousands of dollars.
| Period | Revenue (Previously Reported) | Revenue (As Adjusted) | Operating Income (Previously Reported) | Operating Income (As Adjusted) |
|---|---|---|---|---|
| Year Ended Dec 31, 2014 | $329,151 | $312,900 | $(14,780) | $(14,768) |
| Year Ended Dec 31, 2013 | $286,860 | $283,615 | $3,093 | $1,644 |
| Q1 2015 | $87,329 | $83,532 | $(9,190) | $(8,816) |
| Q2 2015 | $91,414 | $80,649 | $(2,818) | $(8,593) |
| Q3 2015 | $92,405 | $83,310 | $2,243 | $(1,722) |
| Q4 2015 | $97,669 | $92,362 | $7,115 | $8,332 |
| Year Ended Dec 31, 2015 | $368,817 | $339,853 | $(2,650) | $(10,799) |
Note: The filing does not provide specific data on cash flow, debt, or liquidity metrics for these periods, as the primary impact identified relates to revenue and expense recognition timing and amounts.
Material Changes Versus Prior Periods
- Revenue Reduction: Revenue was overstated in all reported periods due to the inclusion of nonmonetary transaction values. The total revenue reduction for 2015 is approximately $28.9 million.
- Operating Loss Expansion: For the full year 2015, the operating loss increased from a previously reported $(2.65) million to an adjusted $(10.80) million.
- Profitability Shift: The company reported an operating profit for Q3 2015 ($2.24 million) which, upon adjustment, becomes an operating loss of $(1.72) million.
- Internal Controls: The investigation identified deficiencies in the internal control system and errors in judgment regarding accounting practices.
Guidance, Outlook, and Risks
- Restatement Timeline: The company is working to file restated financial statements as soon as practicable but cannot predict with certainty when they will be completed.
- Future Adjustments: The company is undertaking a significant effort to ensure errors did not impact other transactions; additional material accounting adjustments may arise.
- Future Policy: The company does not expect to enter into nonmonetary transactions that result in revenue recognition in the future.
- Remediation: Recommended actions include enhancing communications, strengthening revenue recognition controls, and improving internal audit and compliance functions.
- Risks: Risks include the discovery of additional information, delays in filing amended reports, and the potential for further adjustments to financial statements.
Investor Verification Checklist
- Verify the final restated financial statements once filed to confirm the magnitude of adjustments.
- Monitor the timeline for the filing of amended Forms 10-K and 10-Q for 2013, 2014, and 2015.
- Review the company's updated internal control assessments and remediation progress.
- Assess the impact of the restatement on any existing debt covenants or contractual obligations.
- Confirm whether the investigation has concluded and if any additional accounting errors have been identified beyond nonmonetary transactions.