Autodesk 2005 Annual Report Download - page 32

Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amount of assets, liabilities, net revenues, costs and expenses and related
disclosures. We regularly re-evaluate our estimates and assumptions. 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, “Business and Summary
of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements, the following policies
involve a higher degree of judgment and complexity. Accordingly, these are the policies we believe are the most
critical to aid in fully understanding and evaluating our financial condition and results of operations.
Revenue Recognition. Our accounting policies and practices are in compliance with Statement of Position
97-2, “Software Revenue Recognition,” as amended, and SEC Staff Accounting Bulletin No. 104, “Revenue
Recognition.”
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, the price is fixed or determinable and collection is probable. However, determining whether
and when some of these criteria have been satisfied often involves assumptions and judgments that can have
a significant impact on the timing and amount of revenue we report.
For multiple element arrangements that include software products, we allocate the sales price among each
of the deliverables using the residual method, under which revenue is allocated to undelivered elements based
on their vendor-specific objective evidence (“VSOE”) of fair value. VSOE is the price charged when that element
is sold separately or the price as set by management with the relevant authority. If we do not have VSOE of the
undelivered element, we defer revenue recognition on the entire sales arrangement until all elements are
delivered. We are required to exercise judgment in determining whether VSOE exists for each undelivered
element based on whether our pricing for these elements is sufficiently consistent.
Our assessment of likelihood of collection is also a critical element in determining the timing of
revenue recognition.
Our product sales to distributors andresellers are generally recognized at the time title to our product passes
to the distributor or reseller, provided all other criteria for revenue recognition are met. This policy is predicated
on our ability to estimate sales returns. We are also required to evaluate whether our distributors and resellers
have the ability to honor their commitment to make fixed or determinable payments, regardless of whether they
collect cash from their customers. If we were to change any of these assumptions or judgments, it could cause
a material increase or decrease in the amount of revenue that we report in a particular period.
In addition to product sales, Autodesk recognizes maintenance revenues from our subscription program and
hosted service revenues ratably over the contract periods. Customer consulting and training revenues are
recognized as the services are performed.
Allowance for Doubtful Accounts. We maintain allowances for bad debts for estimated losses resulting from
the inability of our customers to make required payments. Our allowance for doubtful accounts was $7.2 million
and $9.7 million at January 31, 2005 and 2004, respectively.
Estimated allowances for doubtful accounts are determined based upon historical loss patterns, the number
of days that billings are past due and an evaluation of the potential risk of loss associated with specific problem
accounts. The use of different estimates or assumptions could produce different allowance balances. While we
believe our existing allowance for doubtful accounts is adequate and appropriate, additional reserves may be
required should the financial condition of our customers deteriorate or as unusual circumstances arise.
Product Returns Reserves. With the exception of contracts with certain distributors, our sales contracts do
not contain specific product-return privileges. However, we permit our distributors and resellers to return product
in certain instances, generally when new product releases supercede older versions. Our product returns reserves
were $15.3 million at January 31, 2005 and $19.0 million at January 31, 2004. Product returns as a percentage of
applicable revenues were 4.1% in fiscal 2005, 5.4% in fiscal 2004 and 5.5% in fiscal 2003.
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