CSG Systems filed their 10-K recently, and mentioned the effect of SAB 108 on their financials. But it’s a bit hard to piece together what they meant.
First, this mention of SAB 108 in Note 3: “During the fourth quarter of 2006, we adopted SEC Staff Accounting Bulletin No. 108, 'Considering the Effects of Prior year Misstatements when Quantifying Misstatements in Current Year Financial Statements' (“SAB 108”)… Our adoption of SAB 108 did not have any impact to our consolidated financial statements.”
All well and good. And pretty consistent with the majority of companies noticed so far: no impact from the adoption of SAB 108. Not everyone had errors worth correcting under either the rollover or iron curtain approach required by SAB 108, it seems.
But that bland statement of business-as-usual is contradicted by this one in the MD&A:
Income Tax Provision. The following are the key changes related to our income tax provision from continuing operations between years:
For 2006, we recorded an income tax provision of $38.4 million, or an effective income tax rate of approximately 38%, compared to an income tax provision of $26.2 million, or an effective income tax rate of approximately 36% in 2005 …
For the fourth quarter of 2006, we recorded an effective income tax rate of approximately 42%. The higher effective income tax rate was primarily the result of a correction of minor income tax expense items from previous periods that were not considered material to the current or past periods, giving consideration to the SEC’s Staff Accounting Bulletin No. 108, and thus were recorded in their entirety in the fourth quarter. The accounting correction of these items is considered one-time in nature, and is not expected to materially impact our estimated income tax rate going forward.
Hello? The effective tax rate was higher for the fourth quarter by 4% because of an adjustment for the SAB 108 correction of tax items - but simultaneously, the “adoption of SAB 108 did not have any impact to our consolidated financial statements?”
Which premise is correct? Not both.
Give them credit for taking the high road and not revising history through retained earnings - they’re one of the rare companies observed so far who have taken the SAB 108 corrections into earnings. On the other hand, there’s no other visibility into the nature of the errors: there are no other descriptions, even in the tax note. And no good explanation; all investors can do is take it at face value that the errors were minor. Typical corporate shyness when it comes to disclosures about taxes, one supposes.
CSGS 1-yr chart