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Survey: Sarbanes-Oxley Has Widespread Impact on Revenue Recognition Policies; RevenueRecognition.com Survey Reveals More than Half of All Public Companies Have Modified Revenue Recognition Policies to Comply with Sarbox
[October 24, 2005]

Survey: Sarbanes-Oxley Has Widespread Impact on Revenue Recognition Policies; RevenueRecognition.com Survey Reveals More than Half of All Public Companies Have Modified Revenue Recognition Policies to Comply with Sarbox


CANTON, Mass. --(Business Wire)-- Oct. 24, 2005 -- One of the primary goals of the Sarbanes-Oxley Act (Sarbox) is to ensure that companies are reporting accurate revenue numbers. Consequently, revenue recognition policies have been under particular scrutiny. A new survey of 400 public and private companies found that more than half (55%) of all public companies have changed revenue recognition policies as a result of Sarbox, and that many of these changes were "moderate" to "significant." In addition, revenue recognition was identified as one of the top three ongoing control risks and remediation challenges.



Compliance Processes Considered Inefficient

The survey found compliance processes are in need of additional investment. Only 14% of public companies rated their compliance processes "highly efficient." 58% said their compliance processes may require additional investment, and 24% said additional investment is required. 4% said the processes were largely temporary fixes and will be replaced entirely.


The top three ongoing control risk or remediation challenges are "workflow and approval process," "eliminating spreadsheets," and "revenue recognition." Approval processes are the source of executive liability and therefore a major issue. The pervasiveness of spreadsheets and the specialty calculations they perform are making them difficult to replace. But susceptibility to errors and resistance to documentation makes them a major source of risk. Revenue recognition is becoming far more complex as a result of the combined effect of regulation and business model innovation.

These compliance processes and others are targeted for technology investments in 2005. In many cases they are inter-dependent. As a result, 77% of companies evaluating compliance technology are considering solutions for two or more processes.

"As compliance processes evolve, many companies will look to technology to achieve both compliance and business benefits," said Kathleen Wilhide, Director of Compliance and Business Performance Management research at IDC. "By automating revenue recognition processes, organizations can more readily achieve revenue compliance as well as improved revenue reporting. This not only reduces risk, but lays the foundation for better business performance by providing more timely and accurate information to executives."

Sarbox Impact Trumped by Competitive Pressures

Despite the major changes brought on by Sarbox, revenue recognition policies are being impacted to an even greater degree by business model changes. When asked to identify the primary factor impacting revenue recognition policies, respondents from public companies ranked Sarbox a distant third:

-- 24% Business model changes

-- 17% SAB 101/104

-- 14% SOP 97-1/98-9

-- 14% Sarbanes-Oxley

Sarbox requires companies to document and certify their reporting processes. As a result, many companies have been reviewing their revenue policies to ensure the reported numbers are accurate. But the continual demand for innovation from the market has a more direct impact--new business models typically require new revenue accounting policies.

"The results from this survey show that revenue policies are undergoing a great deal of change," said Gottfried Sehringer Executive Editor of RevenueRecognition.com. "Competitive and regulatory forces are cutting across industries. More and more companies are finding that their current revenue recognition policies are not sufficient. Even private companies are facing new levels of due diligence on revenue for raising capital and M&A activity."

Download Information

More survey results are available online at www.revenuerecognition.com. The survey was conducted during August 2005. In all, 400 high-ranking finance officials, including CFOs, controllers, and senior finance and compliance officers were surveyed.

About RevenueRecognition.com

RevenueRecognition.com is an educational resource for financial executives and dedicated to delivering essential information about revenue management issues with a focus on Revenue Recognition, SEC and FASB Guideline Compliance, Contract and Revenue Management. RevenueRecognition.com is hosted in partnership with CFO.com and Softrax Corporation, a leading provider of revenue management software solutions. To learn more about Softrax's solutions, customers and partners, please visit www.softrax.com.

About IDC

IDC is the premier global provider of market intelligence, advisory services, and events for the information technology and telecommunications industries. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. Over 775 IDC analysts in 50 countries provide global, regional, and local expertise on technology and industry opportunities and trends. For more than 40 years, IDC has provided strategic insights to help our clients achieve their key business objectives.

IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. You can learn more about IDC by visiting http://www.idc.com.

Note to Editors:

The AIPCA's Statement of Positions (SOP) 97-2 and 98-9 provide guidance on revenue accounting for multi-element contracts--bundled products and services delivered over time--in the software industry. Staff Accounting Bulletins (SAB) 101 and 104 issued by the Securities and Exchange Commission generalize the applicability of SOP 97-2 to all industries using multi-element contracts.

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