Since its formation in California in June 1977, Oracle Systems Corporation has grown rapidly to become the world's largest supplier of database management software. It also offers maintenance, consulting, training, and systems integration services and it is the leader in its industry. But currently, its way of revenue recognition has been debated. Under Oracle's current set of accounting rules, Oracle can recognize any revenue they believe will be shipped within the next twelve months, not shipped. It occurred the question of the Oracle. Thus, some analysts question Oracle Systems about their way of revenue recognition.
Identify Oracle’s assumptions
1. Oracle assumes that their way of revenue recognition is trusty and worthy. Oracle recognize the licensing and sublicensing revenues at the day such agreements are effective. If the customer is worthy to trust, the terms of the agreement are such that the amounts are due within one year and are nonrefundable and the agreements are not cancellable. The assumption is based on the trust of buyers. Revenues also come from maintenance agreements. Maintain agreements provide customer updated products, services, technology support and so forth. Maintenance fees are recorded as revenues when they sign in the contract and the fees are receivable for Oracle. As can be see the charts, the number of revenues had climbed increasingly in 1990, comparing with 1989. 2. Oracle assumes that the quality of receivables is great. But managers concerned about the quality of receivables. Oracle’s days receivable exceeded 160 days which was significantly longer than competitor average of 62 days. The achievement of sales is based on the aggressive sales practice. They tend to expand their scope and scale of sales. 3. Oracle assumes that the investors have known the revenue method used by company. The shareholders will support their operating ways.
If Oracle changes to more conservative...