Revenue Recognition Issues in Telecom Sector Essay

Revenue Identification Issues in Telecom Market

Incorrect Number: Telecom Tricks

The telecommunications industry had its very own bizarre carry out revenue recognition during the growth. From 97 to 2150, Global Traversing took in over $7 billion of debt to lay 1 . 7 million miles of fiber-optic cable connection to transport info via the Internet. Once completed in summer 2001, the network spanned 27 countries and two hundred major metropolitan areas around the globe. You’re able to send debt fill didn't manage to faze investors—Global Crossing's industry capitalization reached $40 billion in 1999. But then other service providers entered the marketplace, worldwide economic growth began to slow, and Internet consumption, while growing fast, was not taking off quite as fast as organization management acquired expected. Because of this, demand for Global Crossing's fiber-optic capacity started to wane. Fearing that showing signs of damage financial overall performance would cause its share price to collapse and call into question you’re able to send ability to services its debts, management began concocting revenue from capability swaps to carriers. In one such exchange, executed inside the first 50 % of 2001, Global Crossing " sold” $22.99 million of capacity to Qwest Communications, that was also suffering a demand slowdown, while " buying” an equal amount of capacity through the same company. The hundred buck million price tag was a great essentially arbitrary value placed on the deal by executives of both companies. The asset these were trading was unused fiber-optic capacity (known in the industry while " dark fiber”), for which there was no demand and then for which there might be no with regard to years to come. Almost 20 percent of Global Crossing's $3. 2 billion in revenue in the second quarter of 2001 originate from capacity swaps. For the first nine months of 2001, this sort of swaps accounted for $600 mil of Qwest's $15 billion in income. While the amount of the swaps appears simple as a percent of total revenue, it accounted for the majority of the company's sales growth in that period. If the accounting treatment was asked, Global Crossing defended...