After warning it would not file its annual report on time due to accounting issues Iteris (ITI), a provider of transportation technology solutions, revealed it had overstated unbilled accounts receivable for the year ended March 31, 2022 by 28.3%.

Iteris also overstated deferred revenue by 13.6%.

It took Iteris two years to correct the misstatements since the errors, according to the company, were related to activity prior to the fiscal year ended March 31, 2021.

The inaccurately recorded assets (receivables) and liabilities (deferred revenue), appear to have remained on Iteris’ balance sheet long after work on the customer contracts in question had stopped:

“Such misstatements relate to balances for contract assets and refund liabilities we determined should have previously been eliminated based on a combination of contract age and cessation of activity associated with certain contracts.”

Years old assets and liabilities that turn out to be non-existent suggest, to us, Iteris has a material weakness in its internal controls over financial reporting (ICFRs). Yet management assured investors its controls were effective.

Likewise, the company’s auditor Deloitte & Touche, also blessed Iteris’ internal controls as effective.

When Iteris files its next Proxy Statement— presumably in July— we’ll read with interest whether Deloitte is awarded a fee increase.

Iteris executives received significant bonuses in FY21 and FY22, the years the non-existent assets and liabilities were recorded on the balance sheet.

Separately, Iteris says the misstatements are not material.

Instead of restating previous filings, the determination allows Iteris to simply revise FY22’s financials in its most recent annual report.

The impact to Iteris’ FY22 deferred tax assets was an increase of $0.3 million to the net operating losses from $4.0 million to $4.3 million, and an equal increase to its valuation allowance from $14.6 million to $14.9 million.