Citrix 2009 Annual Report Download - page 46

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In 2009, we adopted new accounting rules for acquisitions and future IPR&D will be capitalized.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
liabilities. We base these estimates on our historical experience and on various other assumptions that we believe
to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the
carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate
these estimates and judgments based on available information and experience. Actual results could differ from
our estimates under different assumptions and conditions. If actual results significantly differ from our estimates,
our financial condition and results of operations could be materially impacted.
We believe that the accounting policies described below are critical to understanding our business, results of
operations and financial condition because they involve more significant judgments and estimates used in the
preparation of our consolidated financial statements. An accounting policy is deemed to be critical if it requires
an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the
estimate is made, and if different estimates that could have been used, or changes in the accounting estimates that
are reasonably likely to occur periodically, could materially impact our consolidated financial statements. We
have discussed the development, selection and application of our critical accounting policies with the Audit
Committee of our Board of Directors and our independent auditors, and our Audit Committee has reviewed our
disclosure relating to our critical accounting policies and estimates in this “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K for the year
ended December 31, 2009 describes the significant accounting policies and methods used in the preparation of
our Consolidated Financial Statements.
Revenue Recognition
The accounting related to revenue recognition in the software industry is complex and affected by
interpretations of the rules and an understanding of industry practices, both of which are subject to change. As a
result, revenue recognition accounting rules require us to make significant judgments. In addition, our judgment
is required in assessing the probability of collection, which is generally based on evaluation of customer-specific
information, historical collection experience and economic market conditions. If market conditions continue to
decline, or if the financial condition of our distributors or customers deteriorate, we may be unable to determine
that collectability is probable, and we could be required to defer the recognition of revenue until we receive
customer payments.
We license most of our products bundled with a one year contract for license updates that provide the
end-user with enhancements and unspecified upgrades to the licensed product on a when and if available basis.
Customers may also elect to purchase subscriptions for license updates, when not bundled with the initial product
license. Customers may also elect to purchase maintenance, technical support, product training or consulting
services. We allocate revenue to license updates, maintenance and any other undelivered elements of the
arrangement based on vendor specific objective evidence, or VSOE, of fair value of each element and such
amounts are deferred until the applicable delivery criteria and other revenue recognition criteria have been met.
The balance of the revenue, net of any discounts inherent in the arrangement, is recognized at the outset of the
arrangement using the residual method as the product licenses are delivered. If we cannot objectively determine
the fair value of each undelivered element based on the VSOE of fair value, we defer revenue recognition until
all elements are delivered, all services have been performed, or until fair value can be objectively determined.
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