NACD - National Association of Corporate Directors

Companies Are Using 'Ghost Revenue' to Calculate Executive Bonuses

MarketWatch (Nov. 13, McKenna) has learned that such companies as Broadcom Ltd., Norwegian Cruise Line Holdings Ltd., and Symantec Corp. are adding back millions in so-called "ghost revenue" -- deferred revenue that accounting standards force them to write off after an acquisition -- when calculating executive bonuses. Under acquisition accounting rules, the fair value of acquired deferred revenues are often less than the total reported on the acquired companies' balance sheets. These write-downs become "ghost revenues" for the acquiring firm that are added back into revenue numbers according to Generally Accepted Accounting Principles (GAAP). This, in turn, creates adjusted revenue metrics that are reported to investors. SEC Deputy Chief Accountant Wesley Bricker cautioned companies over a year ago that any non-GAAP metrics that adjust revenue would likely receive a comment letter from his agency.

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