TNE Short attack, page-29

This is not meant as an opinion, but to try and explain how you can inflate revenues in the IT world, although I am not saying this is what TNE did, or what GMT have written as I have not had access to the GMT piece.

In the SAAS world it is possible to inflate revenue based on contracts. Often the SAAS revenue for an organisation will be a fee per month (lets say $10,000 per month) and an implementation fee (lets say $150,000) The contract could ask the buyer to pay 6 months of SAAS fees up front ($120k) and receive the money. The company could book all of that revenue into the year received, despite it happening mid year, and if it happens mid year then only $60k should be recognised as revenue and the rest will be pre-paid income, many companies recognised when received. That was until AASB 15 (a new accounting standard ) came in, in which revenue should only be recognised based on when it is earned. In this case they could only recognise $60k. If contracts dates are recorded wrongly though, revenue could be overstated. You could also have a signing fee, which could be recognised at the date it is signed. Some organisations could classify contracts with signing fees up front rather than include them as SAAS fees. Implementation services are hard to do too much with, but should be recognised when the work happens, rather than when the organisation is invoiced. That is hard to investigate though.

I don't know what GMT are claiming TNE did, although I did read in media articles that they claimed that TNE changed dates on contracts. If this is the case that would overstate that reporting period. I don't know the truth, but I hope this explains how a company who sells IT solutions could overstate revenue.