Diebold Restatement Calls Its Integrity Into Question

Oct. 3.07 | About: Diebold Inc. (DBD)

Diebold (NYSE:DBD) will change the way revenue is reported after its accounting practices came under SEC scrutiny, the company said in a press release issued Oct 2. Diebold may now record sales only after its products are delivered or installed, said spokesman Mike Jacobsen.

A quick scan of their financial statements includes this note to financial statements that defines revenue recognition.

Revenue Recognition The company's revenue recognition policy is consistent with the requirements of Statement of Position [SOP] 97-2, Software Revenue Recognition and Staff Accounting Bulletin 104 (SAB 104). In general, the company records revenue when it is realized, or realizable and earned. The company considers revenue to be realized or realizable and earned when the following revenue recognition requirements are met: persuasive evidence of an arrangement exists, which is a customer contract; the products or services have been provided to the customer; the sales price is fixed or determinable within the contract; and collectibility is probable. The sales of the company's products do not require production, modification or customization of the hardware or software after it is shipped.

Kudos to the SEC for finally protecting the investor. The corporate press release makes mention that while they are still figuring it out, they will have to restate previous financial reports, but do not believe that the cash position will be affected. This is universal corporate baffle gab. Investors are supposed to be quiet if the cash position does not change, everything else is not so important.

Essentially Diebold was not following its publicly stated policies. Diebold was not following accounting standards that investors should be able to rely on. KPMG the auditors in this case certified the statements when they should not have. The Board OK'ed everything. Governance! Governance! Governance!

What consequences will Diebold executives have for this inadequacy? Many in the political arena contend that their voting machines cannot count correctly. The SEC has definitively determined that the corporate accounting was not counting correctly.

Does Diebold have a corporate culture problem?