Accounting & Tax

Weak Signal: Wireless Reseller Restates

Cites revenue recognition issues; also acknowledges lack of sufficient knowledgeable employees with an appropriate accounting background.
Dave Cook and Stephen TaubApril 4, 2007

InPhonic, an online reseller of wireless products and services, will restate its results for the second and third quarters of 2006 due to improper revenue recognition.

The revisions, including amendments to InPhonic’s year-end results, will widen its previously reported net loss for 2006 by between $5 million and $7 million.

In a regulatory filing, InPhonic also identified three material weaknesses in its internal controls over financial reporting. Among them: lack of a sufficient number of knowledgeable employees with an appropriate accounting background.

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The company explained that it had recorded revenue for certain disputed carrier commissions which it had deemed collectible, but now acknowledged that it was inappropriate to have recorded revenue until the collections are received. InPhonic noted that it has since collected some of those receivables and recorded them as revenue.

The company also disclosed a deficiency in its process for recording certain fees due from consumers who cancel a contract but don’t return their wireless device. InPhonic acknowledges that the recorded revenue should be reduced to reflect the company’s historical experience.

InPhonic added that it is actively marketing pools of these receivables in a third-party marketplace, and if it can collect on or sell them at a more favorable rate, the company may record a gain at the time of collection or sale.