Companies going public with serious holes in their financial-reporting controls -- such as Peloton -- is more common than investors may realize.
Exercise-bicycle company Peloton Interactive Inc. voluntarily disclosed material weaknesses in its financial-reporting controls when the company filed for an initial public offering last week. Going public with serious holes in controls, however, is more common than investors may realize.
Peloton had annual revenues of $915 million for the fiscal year ended June 30, 2019, so it barely still qualifies as an “emerging-growth company,” which allows it to take advantage of reduced reporting and other corporate governance requirements, including the pass on paying its auditor, KPMG, to report on its internal controls over financial reporting for a while.
These issues and weaknesses may be typical of most startups and might be expected in small, development-stage low- or no-revenue companies, but are more surprising in a company like Peloton that already has significant revenue. However, the requirement for companies to create and maintain a system of internal accounting controls that provide ‘’reasonable assurances’’ that “transactions are recorded as necessary to permit preparation of financial statements” that comply with Generally Accepted Accounting Principles, or GAAP, has been around since 1977.
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