Filter
Top Products
revenue is not recognized until the earlier of (i) the undelivered element is delivered or (ii) fair value of the undelivered element exists, unless
the undelivered element is a service, in which case revenue is recognized as the service is performed once the service is the only undelivered
element.
Our assessment of which revenue recognition guidance is appropriate to account for a deliverable also can involve significant judgment. For
instance, the determination of whether software is more than incidental to hardware can impact whether the hardware is accounted for under
software revenue recognition or general revenue recognition guidance. This assessment could impact the amount and timing of revenue
recognition.
For accounting units related to customized network solutions and certain network build outs, revenues are recognized under SOP 81-1 using
the percentage-of-completion method. In using the percentage-of-completion method, revenues are generally recorded based on a measure of
the percentage of costs incurred to date on a contract relative to the estimated total expected contract costs. Significant judgment is often
required when estimating total contract costs and progress to completion on these arrangements, as well as whether a loss is expected to be
incurred on the contract. Management uses historical experience, project plans and an assessment of the risks and uncertainties inherent in the
arrangement to establish these estimates. Uncertainties include implementation delays or performance issues that may or may not be within our
control. Changes in these estimates could result in a material impact on revenues and net earnings (loss).
We make certain sales through multiple distribution channels, primarily resellers and distributors. These customers are generally given certain
rights of return. Accruals for estimated sales returns and other allowances and deferrals are recorded as a reduction of revenue at the time of
revenue recognition. These provisions are based on contract terms and prior claims experience and involve significant estimates. If these
estimates are significantly different from actual results, our revenue could be impacted.
We provide extended payment terms on certain software contracts and may sell these receivables to third parties. The fees on these contracts
are considered fixed or determinable if the contracts are similar to others for which we have a standard business practice of providing extended
payment terms and have a history of successfully collecting under the original payment terms without making concessions. If fees are not
considered fixed or determinable at the outset of the arrangement, revenue for delivered products is deferred until the fees become legally due
and payable and therefore estimates and judgment in this area can impact the timing of revenue recognition.
The collectibility of trade and notes receivables is also critical in determining whether revenue should be recognized, especially considering the
current economic environment within our industry. As part of the revenue recognition process, we determine whether trade or notes receivables
are reasonably assured of collection and whether there has been deterioration in the credit quality of our customers that could result in our
inability to collect the receivables. We will defer revenue but recognize related costs if we are uncertain as to whether we will be able to collect
the receivable. As a result, our estimates and judgment regarding customer credit quality could significantly impact the timing and amount of
revenue recognition.
For further information on our revenue recognition policies relating to our material revenue streams, you should also refer to note 2(d) of the
accompanying consolidated financial statements.
P
rovisions for doubtful accounts
In establishing the appropriate provisions for trade, notes and long-term receivables due from customers, we make assumptions with respect to
their future collectibility. Our assumptions are based on an individual assessment of a customer’s credit quality as well as subjective factors
and trends, including the aging of receivable balances. Generally, these individual credit assessments occur prior to the inception of the credit
exposure and at regular reviews during the life of the exposure and consider:
Once we consider all of these individual factors, we make a determination as to the probability of default. An appropriate provision is then
made, which takes into consideration the severity of the likely loss on the outstanding receivable balance based on our experience in collecting
these amounts. In addition to these individual assessments, in general, outstanding trade
83
• a customer’s ability to meet and sustain its financial commitments;
• a customer’s current and projected financial condition;
• the positive or negative effects of the current and projected industry outlook; and
• the economy in general.