The Securities and Exchange Commission (SEC) has asked the Financial Accounting Standards Board (FASB)’s emerging issues task force to change the rules governing internet companies, according to the Wall Street Journal. In particular, the SEC is concerned that internet distributors are including all revenues for product sales, rather than the distribution fees to which they are entitled. The practice of booking revenue for free services provided to customers is another worry, as is revenue booked for bartered advertising exchanges. Apparently, net-based companies are booking revenue for the ads on their own sites and marketing expenses for the ads they place elsewhere, even though no money changes hands. SEC chief accountant Lynn Turner pointed out that while revenue recognition is the biggest item on the financial statement, it’s covered by the fewest rules. Even so, it’s not clear what, if anything, the FASB could do. What is clear is that if it does act, the inflated revenues of certain internet companies could burst like a South Sea Bubble.
