Swedish telecom equipment maker Ericsson defended its accounting practices after a Swedish media outlet Svenska Dagbladet reported accusations that the company was inflating revenue figures by recording income before billing clients. Ericsson stock lost 5% after the accusation came out. However, once defended, its stock value began to rise.
Ericsson defended itself by showing its annual report that stated one of the conditions for reporting sales is when “collection is reasonably assured”. Ericsson recognizes orders as sales once the risks and benefits of a contract have been transferred to customers, a statement from Ericsson said.
“Ericsson is said to account for anticipated income as pure sales, though customers have not even received the first invoice. It could be as high as between 100 and 150 billion [kronor, which is U.S. $11.7 billion to $17.5 billion], recorded as revenue in Ericsson’s books but where customers are in many cases not yet even been required to pay, according to knowledgeable sources,” the newspaper cited a source.
“The company’s auditors, Price Waterhouse Coopers, go through all financial statements and quarterly reports in line with the accounting standard ISRE 2410, and gives a formal Auditor’s report for the full year financial statement,” Ericsson clarified.