MIS clarifies impact of prior-period restatements in alignment with 2021

Logo of Al Moammar Information Services

Al Moammar Information Services (MIS) explained the impact of restatement of previous periods in alignment with 2021 after the Saudi Organization for Chartered and Professional Accountants (SOCPA) adopted the International Financial Reporting Standards (IFRS) in January 2018.

The IFRS 15 related to “revenue from contracts with customers” mandated companies falling under the Information Technology sector to conduct more analysis and identify contract obligations, to evaluate whether they are separate performance obligations, and allocate the transaction price to the identified performance obligations.

As part of a continuous evaluation process to enhance the adoption and application of accounting practices related to IFRS 15, MIS re-evaluated the accounting treatment for revenue recognition during the fourth quarter of 2021 to re-align with the industry practice adopted globally, the company said in a statement to Tadawul.

For the interest of shareholders, market analysts, investment companies, competitors, bankers, rating agencies, potential investors, and the public at large, the management has re-assessed its role with respect to certain revenue transactions to conclude if the company is acting as a “Principal” or “Agent” including re-assessment of the accounting treatment of Post-Contract Support “PCS”, software as a Service “SaaS” offerings, sale of anti-virus security software, treatment of “what-if upgrades” and application of standalone selling price for revenue recognition, amongst others.

The reassessment was applied to a number of the projects undertaken by the company, which materially covers the overall revenue for the period under report and the previous years. Accordingly, MIS restated the prior periods, and aligned the financial results of the period under report.

In line with IFRS 15, some of the project revenues are presented on a net basis, i.e. the company shall record the margin of those projects and report them as topline, instead of recording the entire sales and the cost of sales on gross-basis, as before, due to role re-assessment moving from principal to agent.

Due to the application of principal versus agent role, recording revenue in certain projects for support, SaaS Cloud subscriptions, and sale of anti-virus software license have moved to net-basis. The company shall record the margin of these projects and report them as top-line, instead of recording the entire sales and cost of sales on gross-basis, as before.

For support revenues where it includes “what-if upgrades”, the company is mandated to segregate the technical support offered from the upgrades provided directly by the technology vendor and as a result, the revenues related to upgrades are presented on a net basis. The company shall record the margin of those projects and report them as topline, instead of recording the entire sales and cost of sales on a gross basis, as before.

In certain cases, where the software license sale does not result in a complex integration, the management has re-assessed the recording of revenues to be on net basis. MIS shall record the margin of these projects and report them as topline, instead of recording the entire sales and cost of sales on gross-basis, as before.

The re-assessment carried out by the management in Q4 2021 impacted the accounting treatment for the year, and there was a need to re-align the presentation of how revenue should be reported, the statement added.

Accordingly, a certain portion of the revenue from customer contracts is recorded on a gross basis. For example, the entire sales and cost of sales, and the remaining portion of the revenue from customer contracts were recorded on a net basis. The related margin of these projects was recorded without having to record the sales and costs. The realignment for 2021 is in line with the principles used to re-state the prior-period figures.

The management observed that the overall impact of the re-assessments and eventual re-statement of prior period numbers including the alignment of financial results for 2021 may not result in a significant impact on the gross margins of the respective periods.

The reassessment process did not lead to any significant reduction of the shareholders’ equity. Nevertheless, certain adjustments due to the re-statement will affect retained earnings for the years 2019 and 2020, without majorly eroding the corpus accretion to the stakeholders.

Considering the high volume of transactions and due to time limitations, whilst the management’s reassessment is ongoing, the auditors have qualified their report for the year ended Dec. 31, 2021.

MIS concluded that business is ongoing normally when it comes to recording profits, customer invoicing and collection and vendor costs, and payments. The presentation of the revenues eventually undergoes a change, and that, in essence, has been captured largely by the company as part of the re-assessment exercise.

Nevertheless, the management’s process covered a number of projects, and considering the gross profit is not significantly impacted due to the re-statement, the resultant impact on shareholders/owner equity is also not significant, with minor exceptions.

MIS reported a net profit after Zakat and tax of SAR 56.5 million for 2021, a drop of 34% from SAR 85.1 million a year earlier, Argaam reported.