Managing high-tech revenue streams.

• Author: O'Connor, Robert
• Position: Revenue Recognition

Call it the "perfect storm," a wholesale accounting industry crisis or the biggest series of financial scandals in decades. However you choose to characterize it, the U.S. economy is at the kind of business reform crossroads that only emerge as the messy aftermath of enormously bad news.

Amid the ever-unfolding Enron Corp. situation, there is relentless and pervasive upheaval in the accounting profession and almost-daily commentary from accounting bodies, the Securities and Exchange Commission, the Congress and the White House. There's no question that the ripple effects of the last few months of intense corporate accounting scrutiny will be felt for years to come.

This is not the first time that poor judgment, opaque accounting methods and revenue management questions have surfaced -- it's merely the most impressive display of grandscale improprieties with billion-dollar price tags, and the most publicized. This is a time that strikes fear into the hearts of many public companies, when the outside world appears poised to pounce without mercy onto any financial wrongdoing, real or perceived. It's also a climate in which the line between honest mistake and intentional deceit has ceased to matter to most people.

This is troubling for all companies but most potentially frightening to high-tech businesses, whose rapidly evolving business models add operational complexity that grows exponentially. The result is uncharted territory: complex combinations of service, product, license and subscription contracts ("multi-element" contracts), and the very real requirement to manage revenue generated by multiple sources over differing contract component cycles.

In this "Enron Age," proper revenue recognition can mean the difference between viability one quarter and being out of business the next. Very few investors are willing to wait out the results of restated financials without bailing out on their investments. Even a few months ago, it was considered important to recognize multi-element contract revenue in an organized way to support ongoing fiscal health and establish the ability to produce accurate forecasts. Now, it's the cornerstone concern of the high-tech enterprise, and the rules and regulations can be as confusing and difficult to correctly apply as ever.

Most of these companies manage their multiple revenue streams with an uneasy mix of financial, accounting and contract management software systems. Because none of these contains the unique...