It also took the step of getting a Standstill Agreement from its creditors to temporarily wave compliance with some terms of its Revolving Credit and Term Loan agreement although it doesn't expect any such problems to arise.

The JTH audit committee, which consulted with KPMG, determined that JTH's financial statements for the year ended April 30, 2102 and the quarters ended July 31 and Oct. 31, 2012 and Jan. 31, 2013 should no longer be relied upon. The company was also forced to ask the SEC for a delay in Form 10K for the year ended April 30, 2013.

At issue were two revenue areas. The company will no longer account for area developer arrangements as franchise sales and instead, will recognize those fees over the life of the contract rather than at the beginning of the relationship. JTH must also gross up revenue for the area developer portion of the franchise fees and royalties and record a corresponding and equal expense for the amount due the area developer.

The company has also changed its treatment of territory franchise fees. JTH had recorded that revenue, net of an allowance for refunds, at the beginning of the contract. The new policy is to record the revenue as payments are made by franchisees.

JTH said the restatements would not have a material effect on its net cash position or net cash flow. The changes mean revenue for the area developer and franchise fees will now be recognized over a number of years.

Bob Scott

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Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind