After Swedish media outlet Svenska Dagbladet reported accusations that Ericsson was inflating revenue figures by recording income before billing clients, the telecom equipment vendor’s stock lost more than 5% of its value. Ericsson has since denied the report, and its stock value has begun to increase.
Citing “knowledgable sources,” Svenska Dagbladet reported in Swedish, translated here to English by Google: “Ericsson is said to account for anticipated income as pure sales, though customers have not even received the first invoice. It could be as high as between 100 and 150 billion [kronor, which is U.S. $11.7 billion to $17.5 billion], recorded as revenue in Ericsson’s books but where customers are in many cases not yet even been required to pay, according to knowledgeable sources.”
In a statement posted to its investor relations page, Ericsson denied the report.
“The claim that Ericsson in a wrongful way has reported income in its accounting is not correct; the claim that the company has changed the definition of net cash to “embellish” the numbers is not correct; the claim that it is ‘inexplicable and abnormal’ for the company to tie up more capital even when the sales are decreasing is wrong.
“The company’s auditors, Price Waterhouse Coopers, go through all financial statements and quarterly reports in line with the accounting standard ISRE 2410, and gives a formal Auditor’s report for the full year financial statement.”
As to how it records revenue, Ericsson explained “revenue is recognized when risks and rewards have been transferred to the customer. Specifically, revenue is recorded when:
- The product or service has been delivered.
- The revenue amount is fixed or determinable.
- The customer has received and activation has been made of separately sold software
- Collection is reasonably assured.”