Volume 5, No. 11

A Revenue Speed Bump For Software Firms?:  Software companies frequently enjoy rapid revenue and profit growth due to the tremendous innovation abounding in this industry. Uniformly accounting for revenue recognition has been a slippery area, however, because of the management subjectivity permitted by the present accounting standard governing software sales transactions. In one of its standard-setting moves, the American Institute of CPAs, has proposed some new rules for software revenue recognition. If they come to pass, they will be far more specific - and restrictive - than the existing standard. Revenues which could have been recognized immediately under the current standard may be deferred into future periods under the proposed accounting - slackening recorded revenue growth. If such a change in accounting occurs, and consequently, revenue growth rates decline, the question that begs to be asked: are current growth rates overstated before such a change - due to hasty revenue recognition?

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