Autodesk 2009 Annual Report Download - page 108

Critical Accounting Policies and Estimates
Our Consolidated Financial Statements are prepared in conformity with U.S. generally accepted accounting
principles. In preparing our Consolidated Financial Statements, we make assumptions, judgments and estimates
that can have a significant impact on amounts reported in our Consolidated Financial Statements. We base our
assumptions, judgments and estimates on historical experience and various other factors that we believe to be
reasonable under the circumstances. Actual results could differ materially from these estimates under different
assumptions or conditions. We regularly reevaluate our assumptions, judgments and estimates. 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 an element is
sold separately or a price 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 for which
we do not have VSOE 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 factor in determining the timing of revenue
recognition. If we do not believe that collection is probable, the revenue will be deferred until the earlier of when
collection is deemed probable or payment is received.
Our indirect channel model includes both a two-tiered distribution structure, where distributors sell to
resellers, and a one-tiered structure where Autodesk sells directly to resellers. Our product license revenue from
distributors and resellers are generally recognized at the time title to our product passes to the distributor, in a
two-tiered structure, or reseller, in a one-tiered structure, provided all other criteria for revenue recognition are
met. This policy is predicated on our ability to estimate sales returns among other criteria. 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 payment from their customers. Our policy also
presumes that we have no significant performance obligations in connection with the sale of our product licenses
by our distributors and resellers to 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.
Product Returns Reserves. We permit our distributors and resellers to return products up to a percentage
of prior quarter purchases. The product returns reserve is based on historical experience of actual product returns,
estimated channel inventory levels, the timing of new product introductions and promotions, channel sell-in for
applicable markets and other factors.
Our product returns reserves were $12.5 million at January 31, 2009 and $14.4 million at January 31, 2008.
Product returns as a percentage of applicable revenue were 5.2% in fiscal 2009, 3.5% in fiscal 2008 and 3.9% in
fiscal 2007. During fiscal year 2009 and 2008, we recorded additions to our product returns reserves of $52.5
million and $46.8 million, respectively, which reduced our revenue.
30