Symantec 2015 Annual Report Download - page 113

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our Consolidated Financial Statements and related notes included in this annual report in
accordance with generally accepted accounting principles in the U.S., requires us to make estimates, including
judgments and assumptions, that affect the reported amounts of assets, liabilities, revenue, and expenses, and
related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and
on various assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on a
regular basis and make changes accordingly. Historically, our critical accounting policies and estimates have not
differed materially from actual results; however, actual results may differ from these estimates under different
conditions. If actual results differ from these estimates and other considerations used in estimating amounts
reflected in our Consolidated Financial Statements included in this annual report, the resulting changes could
have a material adverse effect on our Consolidated Statements of Income, and in certain situations, could have a
material adverse effect on our liquidity and financial condition.
A critical accounting estimate is based on judgments and assumptions about matters that are uncertain at the
time the estimate is made. Different estimates that reasonably could have been used or changes in accounting
estimates could materially impact our operating results or financial condition. We believe that the estimates
described below represent our critical accounting policies and estimates, as they have the greatest potential
impact on our Consolidated Financial Statements. See also Note 1 of the Notes to Consolidated Financial
Statements included in this annual report.
Revenue recognition
We recognize revenue primarily pursuant to the requirements under the authoritative guidance on software
revenue recognition, and any applicable amendments or modifications. Revenue recognition requirements in the
software industry are very complex and require us to make estimates.
For software arrangements that include multiple elements, including perpetual software licenses and maintenance
or services, packaged products with content updates, and subscriptions, we allocate and defer revenue for the
undelivered items based on the fair value using vendor specific objective evidence (“VSOE”), and recognize the
difference between the total arrangement fee and the amount deferred for the undelivered items as revenue. VSOE of
each element is based on the price for which the undelivered element is sold separately. We determine fair value of the
undelivered elements based on historical evidence of our stand-alone sales of these elements to third parties or from the
stated renewal rate for the undelivered elements. When VSOE does not exist for undelivered items, the entire
arrangement fee is recognized ratably over the performance period. Our deferred revenue consists primarily of the
unamortized balance of enterprise product maintenance, consumer product content updates, managed security services,
subscriptions, and arrangements where VSOE does not exist. Deferred revenue totaled approximately $3.7 billion as of
April 3, 2015, of which $555 million was classified as long-term deferred revenue in our Consolidated Balance Sheets.
Changes to the elements in a software arrangement, the ability to identify VSOE for those elements, the fair value of
the respective elements, and increasing flexibility in contractual arrangements could materially impact the amount
recognized in the current period and deferred over time.
For arrangements that include both software and non-software elements, we allocate revenue to the software
deliverables as a group and non-software deliverables based on their relative selling prices. In such
circumstances, the accounting principles establish a hierarchy to determine the selling price to be used for
allocating revenue to deliverables as follows: (i) VSOE, (ii) third-party evidence of selling price (“TPE”) and
(iii) best estimate of the selling price (“ESP”). When we are unable to establish a selling price using VSOE or
TPE, we use ESP to allocate the arrangement fees to the deliverables.
For our consumer products that include content updates, we recognize revenue and the associated cost of
revenue ratably over the term of the subscription upon sell-through to end-users, as the subscription period
generally commences on the date of sale to the end-user. We defer revenue and cost of revenue amounts for
unsold product held by our distributors and resellers.
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