Oracle Case Study

Oracle System Corporation

1. What factors might have led analysts to questions Oracle Systems method of revenue recognition in mid 1990? Are these legitimate concerns?

To reflect the economic substance of a firm revenue performance exist two criteria for revenue recognition. The first criteria it is that the earning process is ssentiality complete, that is the firm provided all, or substantially all the goods or services to be delivered to the customer. The second criteria its cash likely to be received.

Early revenue recognition provides management with the opportunity to boost current earnings by shading product quality and underreporting the cost of returns, reducing the credibility of financial reports.

Theres some analyst that question Oracles method of revenue recognition because of revenue recognition timing, quality of receivables and aggressive sales practice. These were all legitimate concerns. The company can recognize any revenue they believe will be shipped in the next 12 months, but at the end there were not shipped.

Oracle Recognized licensing and sublicensing revenues on the date of contract instead delivery when certain conditions were met. Revenues also come from maintenance agreements. Maintenance fees are recorded as revenues when they sign the contract and the fees are receivables for Oracle. We can be see the number of revenues had increasaly in 1990 comparing to 1989. The company justified the practice stating its contractual obligation had been substantially performed at the time of signing the agreement.

The problem with recognize revenues of products or services its that always exist a risk that purchasers will be dissatisfied with the quality of future work and demand additional work, and the fact that exist a risk that the cost or providing the future service will be more than anticipade.

Revenues from services is generally recognized under the percentage of completion method. This method records revenue when the contract...