Incredimail 2011 Annual Report Download - page 36

A critical accounting policy is an accounting policy that management believes is both most important to the portrayal of our financial condition and results
and requires management’
s most difficult subjective or complex judgment, often as a result of the need to make accounting estimates about the effect of matters that
are inherently uncertain. While our significant accounting policies are discussed in Note 3 to our financial statements, we believe the following accounting policies to
be critical:
Revenue recognition
Search generated and other revenues from advertising, whether from keyword search, advertising on our website or in our email client, are recognized when
we are entitled to receive the fee. Advertisers are charged and pay monthly, based on the number of clicks generated by users clicking on these ads.
In accordance with ASC 605-
50, "Customer Payments and Incentives" the Company accounts for cash consideration given to customers, for which it does not
receive a separately identifiable benefit or cannot reasonably estimate fair value, as a reduction of revenue rather than as an expense.
Revenues from email software license sales are recognized when all criteria outlined in ASC 985-605, "Software – Revenue Recognition" are met. Revenues
from software license are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable and
collectability is probable.
For substantially all of our software arrangements, we evaluate each of these criteria as follows:
Evidence of an arrangement : We consider a clicking on "acceptance" of the agreement terms to be evidence of an arrangement.
Delivery
: Delivery is considered to occur when the license key is sent via email to the customer or alternatively the customer is given access to download the
licensed key.
Fixed or determinable fee
: Fees are determinable at the time of sale. Customers are charged immediately through credit cards. In addition, the fees are
subject to a refund policy period, currently up to 30 days.
Collection is probable
: We are subject to a minimal amount of collection risk related to software sold to our customers as these are obtained through credit
card sales.
Revenues from licensing The Gold Gallery content database are recognized over the term of the licensing period. We currently offer one year licenses for
The
Gold Gallery content database for a one-
time, upfront payment. These licenses constituted less than 5% of our revenues in 2011. In the past we offered lifetime
licenses as well. Our estimation of the lifetime usage of The Gold Gallery
is six years and is based on historical data collected. We continually track usage patterns,
and as we gather more user information, we may update this estimated useful life. If the lifetime usage of The Gold Gallery
is demonstrated to be shorter or longer
than the current estimate, we would recognize revenues earlier or later. Based on our current revenue streams, such an adjustment would not have a significant effect
on our revenues. We intend in the future to turn this service into a product which expires after one year, without providing ongoing service or updates during the
license period and as a result, recognize revenues upon purchase of the license.
Revenues from our JunkFilter Plus / Protection Center solution and Smilebox service are recognized over the term of the license.
Our deferred revenue consists of the unamortized balance of the license fees, which totaled $5.4 million as of December 31, 2011, of which $4.3 million was
classified as short-term deferred revenues and the balance as long-term deferred revenue on our balance sheets .
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