Accounting & Tax

Nortel Stumbles over Revenue Recognition

In a biweekly status update with Canadian regulators, the company announces additional revenue-recognition timing problems.
Stephen TaubApril 7, 2006

Embattled telecom-equipment company Nortel Networks is required to provide a status update to the Ontario Securities Commission every two weeks — with good reason, it seems.

Nortel disclosed that as a result of current work on its restatement, announced on March 10, it will restate additional revenue that had been recognized in prior periods and defer it to future periods. The company added that it won’t be able to determine the amounts in question or the periods affected until its completes its work on the initial restatement.

The March 10 restatement focuses primarily on an accounting policy change regarding revenue recognition for contracts with multiple deliverables. Historically, Nortel accounted for the revenue using a percentage-of-completion methodology; now it plans to analyze individual contract deliverables such as hardware, software, and services, and their fair value “to determine the time pattern of revenue recognition,” according to a statement Thursday.

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“This revenue is real,” maintained president and chief executive officer Mike Zafirovski when the original restatement was disclosed last month; “it was recognized in the wrong periods.”

Nortel stated that it still expects to file its 2005 annual report by April 30. The company also announced an annual and special meeting of shareholders on June 29 in Toronto.