ASIC review hits Data#3 revenue

Data#3 has seen over a billion dollars wiped off its statutory revenue over 18 months following new accounting rules. 

The publicly listed Australian IT services provider saw a $1.67 billion decrease in official revenue for the year ended 30 June 2023 and a $761 million decrease in revenue for the half year to 31 December 2022.

This is following a review by the Australian Securities and Investments Commission (ASIC), leading Data#3 to recognise revenue from contracts for the sale of some software products as an agent rather than a principal. 

Accordingly, only net earnings on those sales are recognised as revenue. ASIC said there was no impact to Data#3’s profit before tax due to the offsetting expense being eliminated when the revenue is no longer recognised. 

For comparison, Data#3 claimed in August 2023 that revenue increased during the 2023 financial year by 16.9 per cent to over $2.5 billion.

Data#3 told ARN it carried out a detailed review of its software licensing agreements to reassess whether it is as a principal or agent during the first half of financial year 2024.

“This is a statutory presentation change only, and the company will continue to measure its operational performance in terms of gross sales, with both gross sales and statutory revenue to be reported to ensure comparability with historical reporting and to align with how the company internally measures performance,” a Data#3 spokeswoman said.

Distributor Dicker Data similarly changed its revenue reporting for financial year 2023, posting a total revenue of $3.3 billion, but only $2.5 billion recognised as statutory revenue. 

This, again, was due to Dicker Data re-evaluating its software licensing revenue recognition, marking these sales as agent rather than principal. 

Principal revenue is when party controls the goods or services before they are transferred to customers. 

Agent is when a party arranges for the goods or services to be provided by another party without taking control over those goods or services. 

“Under its new financial reporting and audit surveillance program, ASIC targets financial reports for review using risk-based criteria,” ASIC said in a blog post. “These include where ASIC identifies potential issues in revenue recognition or asset valuation. 

“When an entity acts as an agent and recognises all the revenue in relation to a product or service it on-sells, it can create a misleading impression about the size of a business and the potential influence it has on its own profitability.”