👉 Background: Cettire is the online luxury fashion retailer that started up in 2017 and listed on the ASX in 2020. Over the last few months, Cettire’s been grilled over its business model, supply chain, and alleged for tax avoidance.

👉 What happened: Cettire’s announced in its annual report that earnings for the 12 months to June would be 20% lower than the same time last year. It reported a profit of $10.5 million, compared to almost $16 million in profit in the previous year.

👉 What else: This news sent Cettire’s already precarious share price down 20%. In fact, its share price has now dropped 64% this year alone. To top it off, Cettire’s earnings report was published unaudited, as its auditors are still trying to get to the bottom of Cettire’s revenue recognition issue.

What's the key learning?

💡Revenue recognition is an accounting principle that determines when and how a business’ revenue has been earned.

💡This has been an ongoing issue for Cettire. Cettire acts as the middle man between suppliers and customers, so it doesn’t hold any of the stock itself. Cettire's auditors are trying to work out if it's a seller of goods or just an agent.

💡If Cettire's technically an agent, it will have to change how it recognises its revenue and this will have a big impact on how investors see Cettire. So Cettire's going to have to do some serious reputational rehab if it really did record revenue incorrectly.