Restating Revenues and Earnings at INVESTools Inc. Essay

1508 Words Sep 10th, 2014 7 Pages
1. Years Ended December 31, 2004 2003 2002
Revenue (pre-tax) $99.6 $73.4 $56.1
Cost of sales (Revenue x 40%) ($39.8) ($29.4) ($22.4)
Selling expense ($23.3) ($18.5) ($17.5)
General and Administrative expense ($19.9) ($13.2) ($14.2)
Depreciation and Amortization ($0.9) ($0.6) ($0.7)
Other Income (expense) $0.0 ($1.4) $0.2
Net profit (loss)--GAAP $15.7 $10.3 $1.5 Add back amount eligible for capitalization
Under SAB 104 (40% of total costs X 85%) $33.9 $25.0 $19.1 Adjusted Net Income (loss) Reported Internally $49.5 $35.3 $20.5

INVESTools should definitely capitalize these expenses. The practice of not capitalizing these expenses has led to routine recording of net losses
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Also, they can point out the myriad issues in the business industry with inaccurately recognizing subscription revenues as evidenced by the many recent restatements. Finally, the company can cite the continued shift in their business model, borne out by the change in the percentage of cash sales from largely being workshops to revenue-deferred streams like personal training and website renewals. The fact that INVESTools has been experiencing issues with their current accounting practices, that many other companies have also, and that INVESTools will only be experiencing more deferred-revenue streams in the future, the SEC may decide in their favor.
INVESTools should make a press release announcing their intention to approach the SEC to change the company’s accounting treatment of deferred-revenue contracts while simultaneously releasing their written statement to the press, that previous financial statements will be restated. The objective is for investors to see that the company realizes that the GAAP-based revenue and earnings measures are not perceived to be as flattering as they could be and that by seeking to change their accounting treatment, they are making it easier for investors to discern the true value the company is adding through its lifetime customer approach, which is heavily geared

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