After more than six months, comScore's investigation into 'certain accounting matters' has concluded that its last three years' financial statements 'should no longer be relied upon', due to the erroneous inclusion of non-monetary transactions which inflated revenue and other figures.
The firm revealed in March that the previous month the Audit Committee of its Board of Directors had received a 'message regarding certain potential accounting matters'. The committee began an investigation assisted by independent counsel King & Spalding LLP and forensic accountants AlixPartners, LLP. The review focused on 'nonmonetary transactions' - relating to the exchange of data with other companies - which had been included in accounts figures, and the auditors concluded this was an 'error of judgement' compounded by 'internal control deficiencies'.
As a result of these errors, the Committee concluded that the company's consolidated financial statements for years ended December 31st, 2014 and 2013 should no longer be relied upon - as well as quarterly and annual statements for 2015.
comScore intends to 'reverse' revenue and expenses associated with all nonmonetary transactions during the periods in question, and account for them 'at historical cost rather than at fair value'. It explains: 'There is no historical cost basis associated with the assets that the Company exchanged and therefore there should be no revenue recognized or expenses incurred for those transactions' - a fact previously flagged up by commentators including the Wall Street Journal.
According to its filing at www.sec.gov/Archives/edgar/data/1158172/000115817216000170/0001158172-16-000170-index.htm , the Committee regards the investigation as 'substantially complete', and has made recommendations for improving accounting and internal control practices. However, it also says it will look further into the effect of the errors and misstatements on other transactions, stating: 'there may be additional accounting adjustments as a result of these efforts and such adjustments may be material'. Further ramifications could include a review of stock grants to senior execs of the company, based on share price targets which were narrowly achieved; and the stock-based acquisition of Rentrak, some of whose shareholders are already in dispute with comScore.
Based on the results of the investigation to date, the extent of the misstatements is as follows for the annual reports:
|Revenue||Operating (Loss) Income|
|Prev reported||Adjusted to||Prev reported||Adjusted to|
|Year Ended Dec 31st 2013||$286.9m||$283.6m||$3.09m||$1.64m|
|Year Ended Dec 31st 2014||$329.2m||$312.9m||($14.78m)||($14.77m)|
|Year Ended Dec 31st 2015||$368.8m||$339.9m||($2.65m)||($10.80m)|