Oracle case

Oracle case - Oracle Early Revenue Recognition Analysis...

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Oracle – Early Revenue Recognition Analysis Oracle Systems Corporation is a software company was founded by Lawrence J. Ellison in 1977. Between the years 1988 and 1990 Oracle had more than doubled its sales. Oracle generated most of its revenues from licensing software products to end users and sublicensing agreements with OEMs (Original Equipment Manufacturers) and VARSs (Value-added relicensors). However, investors were concerned about the revenue recognition method used by the company. Although there was no set standard, under its current policy Oracle can recognize any revenue they believe will be shipped within the next twelve months. However, the firm should be recording revenues on contract signing. FASB No.5 states that the same criteria for revenue recognition should apply to software companies as well as to other firms; revenue should be recognized when it’s realized, realizable or earned. Oracles aggressive revenue-recognition policy raises several concerns for both investors and management. One concern of investors is how to accurately analyze the firm and how does it compare to its competitors. One argument that could be made is that if the rest of the companies in the industry are using delivery date, Oracle should use it too. We will illustrate how this presents a more realistic of the current position of the company. In exhibit 1 we adjusted the revenue for the early recognition. Then we plug in the result in the income statement and we discover that NI decreases 98% for the 1990 and it is a negative value for 1989 in comparison with the reported values. Huge difference, that if it
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This note was uploaded on 06/22/2008 for the course ACCT 824 taught by Professor Cataldo during the Spring '08 term at Suffolk.

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Oracle case - Oracle Early Revenue Recognition Analysis...

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