SEC launches investigation of games industry accounting practices

The Securities and Exchange Commission in the United States has begun a probe into a number of accounting practices in the games industry, with Acclaim, Activision and THQ all confirming that they are under scrutiny.

The three publishers were notified of the probe earlier this month, according to a Reuters report, and have been asked to supply the SEC with information relating to company accounts and accounting practices.

It's not known which other publishers may have been asked for information, but the investigation is thought to be a wide-ranging one which encompasses the whole industry, rather than being focused on the three named publishers.

"The investigation appears to be focused on certain accounting practices common to the interactive entertainment industry," explained an Activision SEC filing on the matter, "with specific emphasis on revenue recognition."

Industry accounting and reporting practices have come under scrutiny on a number of occasions in the past; Take Two is already under formal SEC investigation for accounting issues related to revenue recognition (an investigation which may have kick-started this more general probe of the industry as a whole), while more recently Acclaim has been hit by a number of class-action lawsuits related to its disclosure of key financial information to shareholders.

According to former SEC enforcement official Nancy Grunberg, this kind of industrywide investigation represents an unusually wide scope for such a probe. "I'm not sure I know of an example of where they launched an investigation of an entire industry like this," she told Reuters. "That does sound a little unusual to me, except for the example of the analysts for the major stock-brokers."

Reuters