Abalance says an external-expert committee found that a legacy IT transaction later carried at former subsidiary Abit lacked economic substance, making the related revenue recognition inappropriate. The deal began as a ¥30mn pre-tax order for an LPWA management-system prototype and was largely outsourced for ¥27mn. Abalance said it will fold prevention measures into an improvement plan and status report still to be disclosed.
| Feature | Disclosed detail |
|---|---|
| Customer order | LPWA management-system prototype, ¥30mn pre-tax |
| Outsourced work | Subcontracted for ¥27mn pre-tax |
| Revenue booked | ¥20mn in June 2019 and ¥5mn in July 2019 under percentage-of-completion accounting |
| Cash paid to subcontractor | ¥145.8mn on Apr. 5, 2019, ¥48.6mn on Jul. 5, and ¥48.6mn on Aug. 9 |
| Receivable later carried at Abit | ¥25mn, or ¥27mn including tax |
| Committee finding | Lacked economic substance; accounting was inappropriate, but intention was not concluded |
The committee stopped short of concluding that the accounting was intentional. It said it could not fully reconstruct the transaction's real substance, but still judged that the deal itself lacked economic reality. One reason was the customer-side paperwork: the named general incorporated association on the later order form could not be confirmed in corporate registration records, and the building manager for the listed Tokyo address said no such tenant had occupied the site. The report also said no contract documents were exchanged with either the original foundation customer or the later association beyond order forms, and that the deal was handled almost entirely by one executive inside the company.
The accounting trail is clearer than the business purpose. Under Abalance's rules at the time, system-integration work above ¥3mn could be booked using percentage-of-completion accounting. After recording ¥22.5mn of subcontracting costs, the company booked ¥20mn of sales in June 2019 and ¥5mn in July 2019. It paid the subcontractor ¥145.8mn, then ¥48.6mn twice, while the remaining ¥4.5mn pre-tax outsourcing balance was never paid. The resulting receivable of ¥25mn, or ¥27mn including tax, was later carried at Abit and remained uncollected.
What pushed the issue back into view was an email trail reviewed by Abalance's current auditor in April. According to the report, a 2021 internal email about how to dispose of the receivable said potential assignees would not take over a "so-called fictitious receivable" for compliance reasons. The committee said that prompted the new probe, which ran from April 27 to June 29.
Investors should note the report's limits. Two key external parties declined interviews, the committee did not obtain the earlier digital-forensics material that had been shared with the current auditor, and it chose not to run its own forensic review because of the scope and the low chance of finding decisive internal data. Even so, it said a wider check of IT-business and Abit sales found no other transactions with similar doubts in the periods examined. Abalance says the remediation points will feed into groupwide internal-control improvements.