SEC Investigating Green Mountain Coffee - Are Revenue Recognition Disclosures to Blame?
MarketWatch posted an article titled Green Mountain's accounting creates a stir. The article strongly suggests that Green Mountain (NASDAQ:GMCR) "has a history of changing the way it reports revenue..." It goes on to say ..."its bookkeeping is being investigated by the Securities and Exchange Commission."
Another article I found quotes the following from today's Form 8-K filing (which I haven't found yet):
On September 20, 2010, the staff of the SEC's Division of Enforcement informed the Company that it was conducting an inquiry and made a request for a voluntary production of documents and information. Based on the request, the Company believes the focus of the inquiry concerns certain revenue recognition practices and the Company's relationship with one of its fulfillment vendors. The Company, at the direction of the audit committee of the Company's board of directors, is cooperating fully with the SEC staff's inquiry.
First of all, there is a difference between an inquiry and an investigation.
I just attended a day and a half long seminar on revenue recognition. To say it is a complex subject is an understatement. It is also a huge focus area right now for the SEC.
One key lesson I learned in that class is that, in terms of revenue recognition disclosure, more is better. Put it out there and tell people what you are doing. MarketWatch on the other hand is taking Green Mountain to task for doing so:
Whereas Green Mountain’s revenue recognition was once described in a single sentence, it now fills three paragraphs in its securities filings. But the enhanced disclosures are raising questions. Regulators might be wondering why Green Mountain has tweaked its accounting policies for booking revenue for the last three years running.
In my view, enhanced disclosures are a good thing. The SEC is asking companies for more information in this area, and the differences in revenue recognition policies for different sales channels. It is quite possible the inquiry is on these changes, and it is quite possible that this will resolve without any changes for Green Mountain. The slant in this article though seems quite unwarranted at this point, and only serves to discourage reporting companies from continuing to improve their disclosures.
Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies. Joel writes observations on different matters and especially on working with and using LinkedIn. He thinks he has a sense of humor.