Software firms 'fool investors' over revenues

A LEADING firm of accountants today warned that British software companies try to give investors the impression that their revenue is stronger than it is.

"Most UK software companies have either poor or very poor software revenue policies when compared to best-practice US standards," says Ernst & Young technology partner Geoff Knight.

E&Y looked at the software recognition policies of 41 listed software companies and found that six in 10 do not implement the US standard known as SOP 9-72, or apply it "inappropriately".

Risk indexes, or ratios of cash collected to cash recorded, suggest a potential for problems with extended payment terms indicating that fees may not be fixed and so are open to question.

Traditional manufacturers get paid at the point of sale whereas software developers generate revenues from the licensing of the their software, thus passing on the cost of the intangible asset to the customer. Installation, training and maintenance may also be booked as revenue.

There is no UK equivalent of the US accounting standard, so software companies book the revenue as soon as a contract for goods and services has been signed.

But the money does not start coming in until the software has been delivered and the services have been performed.

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