When will software companies learn? Short term, aggressive revenue recognition policies which anticipate genuine sales, invariably end in tears. And after the tears come the multiple class action law suits. Last week, ailing Californian software house, Cybermedia Inc, lost its president and CEO following unfortunate revelations about a collapse in sales. The firm’s last quarter numbers now require a second look from the auditors. And similar antics have now surfaced at San Diego-based Altris Software Inc, which develops document management software. Both companies have been slapped with multiple law suits within a matter of days. The suits allege fraud, insider trading and various other types of low down, dirty deceitfulness. The new US accounting standard on revenue recognition for software companies, SOP 97-2 (which supersedes the old SOP 91-1) now applies for all truncations in fiscal years commencing December 15 1997. The new standard requires sales of packaged software products to be both delivered and collectable before they are recognized. And revenue on larger, bespoke or customized systems must be recognized incrementally as completion milestones are met. But hopes that a new, albeit clearer, accounting standard will prevent material misstatements of software sales are probably forlorn. It usually transpires that in such cases, GAAP (Generally Accepted Accounting Principles) have not been followed anyway.
