The British distribution company Carahsoft has continued to make payments of $32 million to CrowdStrike despite the absence of a purchase by the US tax authority IRS. The deal, which was originally intended for the acquisition of identity protection software for the IRS, is still maintained according to CrowdStrike, even though the authority never actually acquired the software.
In the fall of 2023, Carahsoft placed a $32 million order with CrowdStrike Technology Corp., a leading provider of cybersecurity solutions. This order was designed to be non-cancellable, prompting CrowdStrike to record the revenue from the deal in its financial reports. Despite the lack of a purchasing decision from the IRS, Carahsoft remains obligated to make the agreed payments.
The Announcement by George Kurtz, CEO of CrowdStrike, in the Last Quarter Initially Led to a Rise in Stock Prices. However, After the Details Were Released that the IRS Did Not Execute the Order, CrowdStrike's Stock Price Fell by Up to 2.7 Percent. Experts Are Now Warning of Possible Regulatory Reviews, as the Transaction Raises Questions Regarding Accounting and Maintenance of Financial Reporting.
Legal and accounting experts who reviewed the agreement expressed concerns about the transparency and legality of recording such revenues. "At first glance, it appears to be a disproportionate risk that is not typically taken by rational companies," said Lawrence Cunningham, Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
CrowdStrike defended the booking, stating that the transaction complied with common accounting standards for revenue from contracts. "The deal was concluded after careful review and is in accordance with the principles of revenue recognition," explained Jeremy Fielding, spokesperson for CrowdStrike.
The translation of the heading to English is:
"Carahsoft, on the other hand, told Bloomberg News that the order was valid and not cancellable. 'We have placed a firm order with CrowdStrike and stand by this transaction,' said Mary Lange, spokesperson for Carahsoft. Further details on the financing or use of the software were not disclosed.
The IRS confirmed that there are no direct contracts with CrowdStrike and that all software purchases are handled through third parties. A review of the public database USASPENDING.gov revealed no matching contracts or payments, although some security-related information is exempt.
This incident highlights the complex relationships between technology providers and government agencies, as well as the challenges in ensuring transparency and fairness in large contract dealings. While CrowdStrike claims that all bookings are correct, the exact nature of the agreement and the reasons for the IRS's lack of purchase remain unclear.
