Oracle Corp, IBM Corp, Computer Associates International Inc, Relational Technology Inc and Ask Computer Systems Inc are identified as among the US companies that will be most exposed by a standard accounting practice for recognising software and services revenues, which is due to come into force on December 15 1990. Companies that currently recognise software and maintenance revenue as soon as they sign a contract would have to take hefty one-time charges as they moved to the new accounting practice, and reported turnover growth would be reduced for two or three years thereafter, affecting the way the companies were regarded on Wall Street. Under the proposed rules, which have been drawn up by the American Institute of Certified Public Accountants and are expected to be enforced by the Securities & Exchange Commission, companies would not be able to recognise revenue until products are delivered to the customer: at present, reports Computer Systems News, some vendors of large and complex software recognise the agreement as a sale as soon as it is signed, even though the software may take a year to install fully. Also to go is the practice of booking software maintenance revenue upfront instead of monthly or quarterly over the period of fulfillment. And the new rules will also hit those systems integrators that book revenue on the signing of a contract rather than over its term. Integrators will in future have to break down the contract into hardware, off-the-shelf software and custom services, and treat them differently under separate rules that will apply to each. Microcomputer software companies that generally sell through indirect channels are not likely to be much affected, but IBM admitted to the trade weekly that its ability to recoup its software development costs quickly would be handicapped by the new accounting rules. Computer Associates says that the new rules would cut its annual turnover by about $50m because it recognises maintenance revenue upfront. In 1987, Management Science America Inc abandoned the practice of recording sales and maintenance revenue as soon as they were booked and had to take a $72.5m hit with its first quarter figures to adjust its books – more than all profits it had ever accumulated up to then.
