Mitek Systems Misstates 2021 Financials, Auditor Issues Revenue Recognition Warning

Financial technology firm admits larger accounting errors are possible as auditor warns non-standard contracts could result in revenue recognition trouble.

January 5, 2022

Mitek Systems (MITK), a provider of mobile image capture and digital identity verification solutions, made several acquisitions in 2021 but did not not accurately account for at least one. In acquiring ID R&D in a stock and cash deal, Mitek accounted for the stock portion of the deal based on its share price on the date the deal closed rather than the share price at the end of the reporting period as required by ASC 820.

In its latest 10-K, Mitek revealed its auditor caught the error prior to issuing fiscal 2021 financial statements. Correcting the error resulted in an increase of $400k to acquisition-related costs and expenses, an increase to goodwill of $400k and an increase of $800k to acquisition-related contingent consideration.

The accounting error resulted in Mitek reporting a material weakness in its internal controls over financial reporting (ICFR). Though the correction, according to Mitek, isn’t material to its financial statements, the company warned investors:

“....the assessment of the Company’s material weakness takes into account the potential for a larger error to have occurred using the Company’s highest and lowest share prices during fiscal 2021. Based on the share prices observed in fiscal 2021, the misstatement could have been material to the financial statements.”

Mitek’s auditor, Mayer Hoffman McCann P.C, also flagged the company’s software revenue recognition as a critical audit matter due to the unique nature of certain customer contracts:

“...the identification of potential nonstandard terms and conditions may impact significant judgments made by management…”

In addition to accounting missteps, Mitek’s mobile deposit solution— which allows people to take photographs of checks and remotely deposit them at banks— competes with check alternatives like PayPal’s (PYPL) Venmo and Square’s (SQ) Cash App. Deposits revenue accounted for 63% of Mitek’s 2021 sales.

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