"A few days before the insiders began buying the stock, Cadence said it completed an accounting review... [and that] a contract was improperly accounted for... " What are the difficulties in determining when to recognize revenues from contracts to sell computer software such as Cadence's? In your answer, identify the nature of Cadence's products and identify the authoritative accounting literature for recognizing this revenue.

I'm an international student and I supposed to answer this Q after reading this article
Cadence Executives Send Bullish Signals

But I didn't understand the Q?

I found these web
http://www.marketwatch.com/news/story/10-k-cadence-design-systems-inc/story.aspx?guid={C06E09BF-7974-499B-B265-04B10B47AF29}#comments

and

The Business of Software - (SOP) 97-2, Software Revenue Recognition

where I found this

"SOP 97-2 provides that revenue should be recognized in accordance with contract accounting when the arrangement requires significant production, modification, or customization of the software. When the arrangement does not entail such requirements, revenue should be recognized when persuasive evidence of an agreement exists, delivery has occurred, the vendor’s price is fixed or determinable, and collectibility is probable."

I haven't looked at this stuff in a *long* time since I don't currently deal with these issues, but the software revenue recognition issue usually deals with your big things like an SAP installation -- you have a huge license fee, lots of consulting fees for implementation and a project that lasts 1-2 years. The seller (SAP) needs to recognize revenue according to the contract timetable (they can't just grab all that cash up front, before it is fully installed). From the buyer's side, they have to deal with what and how much is depreciable and when they can start depreciation.

For ISVs that sell pre-packaged, perpetual software, you are looking at transferring rights at the time of sale -- so you can fully recognize your revenue (the customer pays, you have no further obligations). I'd have to look up the rules on subscriptions (this would be like a magazine -- do you get to recognize it all up front or do you prorate your revenue each month of the license if you collect an annual fee up front for a subscription?). The latter may depend on if the subscription contract is firm or can be canceled.

All that said, the Apple issue seems to relate to the fact that they are selling hardware alongside the software that makes the wireless card work. In the article, under the "Issues" section, they delve into this fuzzy practice. My guess is that the Apple big 4 auditor looked at the issue and determined that there was a problem along these lines. Apple surely wouldn't bother its customers or deal with this extra admin overhead if they didn't have to.

is this the answer??

I worked in the past as an Accountant of a
Disability Insurance Company for seven years.
The Annual Gross Revenue rose from
$ 1 Million in the first year to $14 Mllion
In year 7.
This is phenomenal growth.
There were new policies issued ever month.
The contracts were of long duration ,
Example 20 years or to age 65.
Here as you can see your problem creeping in.

The determination of the unexpired portion
Of UNEARNED PREMIUMS.

I organised detailed schedules to determine
This.
The basis primarily stood on the EFFLUXION
Of time.
There were many actual movements every month.
It was a very big task.
Once one establishes the lay out and then
You need to progressively keep the system
Up to date by adding and subtracting the relevant details.

The Result we wanted to get was:-
PROVISION FOR UNEXPIRED RISK.

In your case I am certain that there are
Accounting ways of determining how that particular Industry does the Calculation.