Assisting the CFO with Complex Financial Accounting & Reporting Issues
The Situation
A sponsor-backed provider of specialized software, SaaS, and professional services faced significant accounting challenges in the areas of revenue recognition, debt modification, hedging, stock-based compensation, and cost accounting. The key reasons contributing to the problems were the lack of technical competency, the controller’s office staff turnover, and the absence of formalized accounting policies. Accordion’s technical accounting experts were brought in to resolve the issues, correct accounting errors, develop proper analyses, estimates, and calculations, formulate accounting policies, methodologies, and checklists, develop the supportable Company’s position on the above matters, and defend it before the Big Four auditors.
Services
Accounting Policies & Procedures
Financial Statement Preparation & Analysis
Process & Controls Implementation
The Execution
- Deferred Revenue: Analyzed and categorized the balance into 7 distinct components and proposed proper accounting for each category, such as netting down the A/R against deferred revenue for activities unfulfilled at the period-end to avoid the balance sheet gross-up.
- Revenue Recognition: Developed corrected revenue waterfalls based on the detailed contract review and adjusted quarterly revenues and period-end balances in the retained earnings, deferred revenue, and unbilled receivables accounts.
- Debt Modification: Reviewed the debt modification documentation, performed the10% cash flow analysis, determined if the refinancing constituted debt extinguishment or modification for each tranche, and proposed apt accounting entries for each.
- Purchase Accounting: Reviewed “debatable” costs, determined whether they were part of the acquisition consideration or period costs, and proposed appropriate purchase accounting entries.
- Hedges: Analyzed hedge accounting programs and various instruments and made calculations to separate the time value component of hedging instruments for separate accounting.
- Foreign Currency Translations: Conducted analyses of functional currencies for foreign operations and determined which components of foreign exchange gains/losses were includable in the other comprehensive income.
- Goodwill & Intangibles Impairment: Performed the impairment test and explained to management the impact of the new goodwill impairment guidance.
- Stock-based Compensation: Reviewed the stock award and option plans and prepared entries for proper accounting of each award’s tranche.
- Internal/External-use Software: Determined which software qualified as internal-use & calculated capitalizable costs.
The Results
Accordion supported the Company’s CFO with rigorous technical accounting assistance based on its staff’s in-depth GAAP knowledge and multi-decade expertise. This allowed the Company to correct accounting errors prior to the audit, achieve full compliance with complex FASB regulations, improve visibility into revenue, long- and short-term debt, working capital, and obtain a clean audit opinion. As a result of our work, the Company successfully prepared its annual financial statements, had them audited by the Big Four auditor, and issued them before the deadline – one calendar month earlier than in the previous fiscal year.