Avaya’s Revenue Recognition Trouble Inflates 2021 Sales by $15 Million

Call center solutions firm recognizes sales in 2021 that should have been recognized the prior two years.

January 6, 2022

Avaya (AVYA), a provider of software that runs call centers, is blaming its “system configuration and interfaces” for two years of revenue recognition problems. Over the course of multiple reporting periods, Avaya failed to recognize revenue despite delivering on its promised performance obligations. It also overstated contract liabilities.

In its latest 10-K, Avaya revealed accounting errors that impacted reported sales in the fiscal years 2019 and 2020. In correcting the errors, Avaya chose to add revenue it should have recognized in 2019 and 2020 to its 2021 total:

“Revenue for fiscal 2021 also includes a $15 million out-of-period adjustment to record revenue for certain performance obligations satisfied in prior periods.”

Adjusted for taxes, the revisions also resulted in a $13 million decrease in Avaya’s 2021 net loss.

In the annual report Avaya’s management concluded the company’s internal control over financial reporting was effective. The company’s auditor, PwC, also had no problems with Avaya’s internal controls though it did cite revenue recognition as a critical audit matter.

While Avaya made a similar reference the prior year, the company inserted new language in its latest annual report waring investors about its controls:

“In addition, the effectiveness of an internal control system is inherently limited and we cannot assure you that our internal controls will prevent or detect every misstatement or omission. “

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