Security leader faces accounting probe

Security leader faces accounting probe

Shares of RSA Security have fallen sharply following the news that US regulator the Securities & Exchange Commission is investigating the company's past accounting practices.

RSA dropped to $11.86 in trading of 17.3m shares, more than eight times the three-month daily average.

The SEC ‘has commended a formal investigation into certain matters relating to the company and trading in its securities,’ RSA said in a filing with the SEC.

Company officials said the SEC is scrutinising the manner in which RSA disclosed its first-quarter change to revenue recognition.

‘The SEC has not concluded there has been any wrongdoing on our part and we don’t believe there has been any wrongdoing on our part,’ said Art Coviello, RSA chief executive, in a conference call with analysts.

Coviello also said RSA has a growing number of large deals, including deferred projects, and that the government sector would provide a large opportunity for the company.

In one of the firm’s quarterly filings with the SEC last year, RSA disclosed a change to its accounting methods and said it began ‘recognising revenue upon shipment to distributors rather than upon sell-through.’

The practice results in revenues being recorded earlier than they are received.

RSA, which was informed of the investigation on the eve of its fourth quarter results, said it is cooperating fully with the SEC.

RSA had a fourth quarter loss of £7.2m ($10.1m) or 18 cents a share, compared with net income of £73.8m ($103.9m), or $1.70, a year ago. Sales fell 19% to £44.8m ($63m), less than the £45.4m ($64m) average estimated in a survey of analysts by First Call.

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