Extract from Amanda Iacone’s article “Tech Companies Log Billion-Dollar Boost From Accounting Change”
New seasonal swings in revenue due to a change in accounting standards could distort a key performance metric used to value software and technology companies.
The rules, which companies adopted this year, generally require revenue to be recognized when a product is delivered to customers. For technology companies, that timing results in different accounting treatments based on how customers access the product.
The timing of expensing direct costs like sales commissions—a key expense for software companies—also changed under the new standard.