SEC Extends Deadline on Revenue Recognition Rules

Federal regulators granted a three-month reprieve Friday to many companies facing a deadline for changing the way they book revenue.

The Securities and Exchange Commission said public companies with fiscal years that started between last Dec. 16 and March 15, can put the new revenue recognition guidelines into effect in the second quarter of their fiscal years, rather than the first quarter.

“The staff at the commission is interested in assuring that the business community be provided with the additional time necessary to get this done right,” said SEC Chief Accountant Lynn Turner.

SEC Chairman Arthur Levitt has criticized companies that try to boost earnings by recognizing revenue prematurely, such as before a product is delivered or at a time when the customer still has the option to end its sales agreement. Accounting rule makers at the Financial Accounting Standards Board have started a task force that is reviewing accounting concerns raised by, for example, Internet firms that do business in ways that don’t always mesh neatly with traditional accounting rules.

Questions about proper accounting treatment can carry big costs for companies, of course.

For example, MicroStrategy Inc. (ticker symbol: MSTR), a data-delivery software maker, this week said it was forced to reduce revenue booked in 1998 and 1999, as it spread out some revenue over the length of its contracts. The company originally said it changed the figures to comply with the new SEC guidance, then revised its explanation to say that it made the move to adhere to existing accounting rules.

After its announcement, MicroStrategy’s shares plummeted $140 Monday to $86.75. The stock ended the week at $129.

The SEC postponement covers many of the more than 10,000 publicly traded companies because a large number of them end their fiscal year on Dec. 31.