Whether installed on a PC, embedded on a semiconductor chip that runs the latest electronic gadget, or preinstalled as part of a network router, software is becoming a more critical component of many products and services. As this occurs, companies may have to change their revenue recognition policies, moving from principles outlined in SAB 101 to those required for software companies in SOP 97-2. This could have a significant impact on a company's financial statements, as well as on certain acquisitions because:
- A target may have accounted for revenue incorrectly, distorting historical operating results and requiring a potential restatement; or
- A target's products or services may be evolving in a way that will make software more critical in the future, triggering a required change in accounting treatment that could have a material impact on its financial projections.
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