Salesforce.com 2008 Annual Report Download - page 43

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Table of Contents
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of
these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs
and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates
under different assumptions or conditions.
We believe that of our significant accounting policies, which are described in note 1 to our consolidated financial statements, the following accounting
policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding
and evaluating our consolidated financial condition and results of operations.
Revenue Recognition. We recognize revenue in accordance with the provisions of SAB 104 and EITF 00-21.
We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been
provided to the customer; (3) the collection of our fees is reasonably assured; and (4) the amount of fees to be paid by the customer is fixed or determinable.
Our arrangements do not contain general rights of return.
We recognize subscription revenues ratably over the contract terms beginning on the commencement dates of each contract. Support revenues from
customers who purchase our premium support offerings are recognized similarly over the term of the support contract. As part of their subscription
agreements, customers generally benefit from new features and functionality with each release at no additional cost. In situations where we have contractually
committed to an individual customer specific technology, we defer all of the revenue for that customer until the technology is delivered and accepted. Once
delivery occurs, we then recognize the revenue over the remaining contract term.
Consulting services and training revenues are accounted for separately from subscription and support revenues when these services have value to the
customer on a standalone basis and there is objective and reliable evidence of fair value of each deliverable. When accounted for separately, revenues are
recognized as the services are rendered for time and material contracts, and when the milestones are achieved and accepted by the customer for fixed price
contracts. The majority of our consulting service contracts are on a time and material basis. Training revenues are recognized after the services are performed.
For revenue arrangements with multiple deliverables, such as an arrangement that includes subscription, premium support, consulting or training services, we
allocate the total amount the customer will pay to the separate units of accounting based on their relative fair values, as determined by the price of the
undelivered items when sold separately.
In determining whether the consulting services can be accounted for separately from subscription and support revenues, we consider the following
factors for each consulting agreement: availability of the consulting services from other vendors, whether objective and reliable evidence for fair value exists
for the undelivered elements, the nature of the consulting services, the timing of when the consulting contract was signed in comparison to the subscription
service start date, and the contractual dependence of the subscription service on the customer's satisfaction with the consulting work. If a consulting
arrangement does not qualify for separate accounting, we recognize the consulting revenue ratably over the remaining term of the subscription contract.
Additionally, in these situations we defer the direct costs of the consulting arrangement and amortize those costs over the same time period as the consulting
revenue is recognized. The deferred cost on our consolidated balance sheet totaled $17.3 million at January 31, 2009 and $13.9 million at January 31, 2008.
Such amounts are included in prepaid expenses and other current assets and other assets.
Accounting for Deferred Commissions. We defer commission payments to our direct sales force. The commissions are deferred and amortized to sales
expense over the non-cancelable terms of the related
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