Quote:
Originally Posted by Park Seward
Bill,
From what I have been able to read and listen to their accounting videos, it seems they were concerned with software releases and not warranty issues. They explained that since the software was active and the company was supplying bug fixes, they should spread the revenue over the time the software version was active and the customer was being supplied with updates and not book the entire revenue when the software was sold.
I think this is what all the past accounting issues were about and why they had so much work to do. They wanted to spread out the revenue from past sales.
And now with paid updates, they can book the total revenue of the sale when it occurs since we will pay for the updates. They don't need to hold much back.
At least this is what I have been able to understand.
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In my opinion, that is correct...it's also what I have been saying over and over...it has to do with revenue-recognition over an unknown period of time due to the de facto open-ended support contracts that existed.
The critical issue was the open-ended service contracts...that is why Avid is moving to the "service plan" model...they are then dealing only with defined one-year fixed-term service contracts, which simplifies the revenue-recognition.
I used the "hammer" model in an attempt to explain complicated concepts to folks who have no familiarity with corporate finance/accounting.
I commend you for doing what I have been urging people to do, you researched the issue, found the facts, and now have a sound basis for understanding what Avid is doing...good job, Park!