Issues with Revenue Recognition Within the Software Industry
Issues With Revenue Recognition within the Software Industry
The Isoft Example Financial Controller-SoftWarehouse Ltd
This report has been prepared for the Board of Directors of SoftWarehouse Ltd for elucidation about the contentious issues that have given rise to the publication of the article concerning Isoft’s issues with revenue recognition. Finally, it will also assess whether or not these issues are likely to affect SoftWarehouse Ltd.
TABLE OF CONTENTS Executive Summary: 3 Introduction: 5 Part 1- Examining the Isoft Ltd example: 5 PART 2 - The issues faced by software companies in relation to revenue recognition: 6 Part 3- Issues raised that may impact SoftWarehouse Ltd: 7 Part 4 - Future changes in revenue recognition standard: 8 Conclusion: 9 Reference List: 10
Executive Summary: This report has been prepared for the Board of Directors of SoftWarehouse Ltd for elucidation about the contentious issues that have given rise to the publication of the article concerning Isoft’s issues with revenue recognition. Finally, it will also assess whether or not these issues are likely to affect SoftWarehouse Ltd. In January 2006, Isoft, a Manchester based supplier of software applications for the healthcare sector, announced that its profit would be below market expectations due to a required change in its accounting policy for revenue recognition. Isoft was forced to reverse revenue of approximately £70m in 2005 and £55m in 2004 – when Deloitte found that Isoft was recognizing revenue sooner than it should have been. The underlying principle of Isoft’s historic revenue recognition policy had been that the value of the product licenses was recognised at the time of delivery, while the value of support and servicers was recognised as they were performed. Moreover, the value of licences was identifiable and separable form the implementation and support services provided. This is not aligned with what the AASB
The Isoft Example Financial Controller-SoftWarehouse Ltd
This report has been prepared for the Board of Directors of SoftWarehouse Ltd for elucidation about the contentious issues that have given rise to the publication of the article concerning Isoft’s issues with revenue recognition. Finally, it will also assess whether or not these issues are likely to affect SoftWarehouse Ltd.
TABLE OF CONTENTS Executive Summary: 3 Introduction: 5 Part 1- Examining the Isoft Ltd example: 5 PART 2 - The issues faced by software companies in relation to revenue recognition: 6 Part 3- Issues raised that may impact SoftWarehouse Ltd: 7 Part 4 - Future changes in revenue recognition standard: 8 Conclusion: 9 Reference List: 10
Executive Summary: This report has been prepared for the Board of Directors of SoftWarehouse Ltd for elucidation about the contentious issues that have given rise to the publication of the article concerning Isoft’s issues with revenue recognition. Finally, it will also assess whether or not these issues are likely to affect SoftWarehouse Ltd. In January 2006, Isoft, a Manchester based supplier of software applications for the healthcare sector, announced that its profit would be below market expectations due to a required change in its accounting policy for revenue recognition. Isoft was forced to reverse revenue of approximately £70m in 2005 and £55m in 2004 – when Deloitte found that Isoft was recognizing revenue sooner than it should have been. The underlying principle of Isoft’s historic revenue recognition policy had been that the value of the product licenses was recognised at the time of delivery, while the value of support and servicers was recognised as they were performed. Moreover, the value of licences was identifiable and separable form the implementation and support services provided. This is not aligned with what the AASB