Green Mountain: Accounting Schmounting

Reuters just ran a story about Green Mountain Coffee Roasters (NASDAQ:GMCR) and its SEC probe.  Word is Green Mountain has not been charged with any regulatory violations and has said it is cooperating with the investigation. A spokeswoman declined to comment beyond its regulatory filing on the matter.  As we all have learned by investing in crappy stocks, some companies inflate revenues simply by reporting them too soon.

The analysts are still standing by GMCR and since last Friday the stock has gained back 14%.

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If you read us then you know we think this stock is a good buy, this week we wrote Green Mountain: Not Falling Off the Cliff (GMCR) and after the massive decline we belted out Green Mountain Coffee: Buy on Accounting Error (GMCR).

Here's the story from Reuters - Accounting questions brewing at Green Mountain Coffee Roasters Inc have put the spotlight back on revenue recognition, an old accounting problem that refuses to go away.

The maker of single-serve coffee machines has been hit with lawsuits and seen its shares fall 20 percent since it disclosed an accounting probe by the U.S. Securities and Exchange Commission on September 28.

The company has not been charged with any regulatory violations and has said it is cooperating with the investigation. A spokeswoman declined to comment beyond its regulatory filing on the matter.

The SEC inquiry is a reminder that accounting for revenue continues to vex companies, accountants and investors who are guided by sales numbers. Companies could come under more pressure to inflate revenues as the economy recovers and investors expect more robust sales, experts said.

"Revenue recognition has been and always will be one of the key accounting issues," said H. David Sherman, an accounting professor at Northeastern University in Boston.

"Revenues are certainly the thing you see first on the income statement and it's certainly what drives much of the profit of a business."

The bedrock of financial accounting, revenue recognition rules require that companies report revenues only when they are earned, although conditions and exceptions are rife. It can be complicated, for example, to determine when to report revenues for services rendered over time or for products and services bundled together.

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