Dover Downs: Lucky 108!

From AAO Weblog

Another revenue recognition correction, this one in the books and records of Dover Downs Gaming & Entertainment.

From the 10-K:

“… Prior to adopting SAB No. 108, our approach to quantifying misstatements only considered the amount of the error originating in the current year statement of earnings. Thus the effects of correcting the portion of the balance sheet misstatement that originated in prior years were not considered. Upon adopting SAB No. 108, we changed our approach to quantifying the effects of misstatements to include an analysis of the impact on the current year statement of earnings for the cumulative balance of any known errors, regardless of when they originated. When we applied the new approach to quantifying the effects of misstatements to our 2006 consolidated financial statements, we identified an error that was not material to our consolidated statement of earnings in any prior quarter or annual period; however, the cumulative error would have been material to correct in the current period.”

[Kudos: one of the best explanations seen thus far of why an error that was not material for a long time became material when examined through a SAB No. 108 prism.]

“The error resulted from a difference in the amount of slot win we recorded from our meters as compared to the amount of cash slot win that was taken out of the slot machines and had accumulated over several years. Since the error was not material to any prior statement of earnings, we were not required to restate prior year financial statements. The consolidated financial statements were corrected with an adjustment of $1,541,000, net of income tax effect of $1,055,000, to the beginning balance of retained earnings at January 1, 2006.”

That’s a pretty interesting error. It’s not your typical “revenue recorded before its time” kind of error. It’s as if a retailer had booked as revenue what was recorded by the cash registers – even if it wasn’t supported by cash IN the register. It’s not clear how long it took to accumulate that kind of difference.

http://www.accountingobserver.com/blog/