Business Context and Reporting Period
This Form 8-K, filed on November 17, 2016, by comScore, Inc., reports the completion of an Audit Committee investigation into potential accounting matters initiated in February 2016. The filing details significant accounting adjustments required for the years ended December 31, 2013, 2014, and 2015, and announces immediate changes to the Board of Directors.
Key Financial Metrics and Accounting Adjustments
The filing does not provide specific updated revenue, profit, or cash flow figures. Instead, it outlines the following accounting determinations:
- Nonmonetary Transactions: Revenue and expenses associated with nonmonetary transactions for 2013, 2014, and 2015 are being reversed. These will be accounted for at historical cost rather than fair value. As there is no historical cost basis for the exchanged assets, no revenue or expenses will be recognized for these transactions.
- Monetary Transactions: Adjustments are required for certain monetary transactions, primarily regarding the timing of revenue recognition. Issues identified include over-delivery of data, undisclosed additional arrangements requiring single-arrangement accounting, and delayed invoicing inconsistent with contract terms.
- Impact on Operations: While nonmonetary transactions inherently have no effect on operating income or cash flow over the life of an agreement, the timing of revenue relative to expenses may impact periodic results.
Material Changes and Internal Control Deficiencies
The investigation concluded that instances of misconduct and errors in accounting determinations necessitated the reversal of prior accounting treatments. Material changes include:
- Restatement Requirement: The Company cannot support prior accounting for nonmonetary transactions and must restate consolidated financial statements for 2013, 2014, and 2015.
- Internal Control Failures: Deficiencies were identified regarding "tone at the top," errors in judgment, failure to provide information to the accounting group and external auditors, and insufficient public disclosures regarding performance metrics.
- Future Policy: The Company does not expect to enter into future nonmonetary transactions that result in revenue recognition.
Outlook, Management Commentary, and Risks
Management Actions: The Company is implementing remedial measures, including separating certain personnel, enhancing disclosure controls, strengthening revenue recognition controls, and bolstering internal audit and compliance functions.
Board Leadership Update:
- Joan Lewis (Chair of the Board) and Patricia Gottesman (Chair of the Nominating and Governance Committee) resigned effective November 17, 2016. Their resignations were not due to disagreements with the Company.
- William Henderson was appointed Chairman of the Board on November 18, 2016.
Timeline and Risks: The Company is working to file restated financial statements but cannot predict with certainty when they will be completed. Risks include the discovery of additional information requiring further adjustments, delays in the review by management and auditors, and the possibility that amended reports will take longer than expected to file.
Investor Verification Checklist
- Verify the timeline for the filing of restated financial statements for 2013, 2014, and 2015.
- Monitor for announcements regarding additional accounting adjustments that may arise from the ongoing review of transactions not included in the initial investigation.
- Review the Company's updated disclosure controls and procedures to ensure the "tone at the top" and internal control environment have been effectively remediated.
- Assess the impact of the revenue recognition reversals on historical financial performance once restated statements are released.