Not Enron, i2.
My lawyer friend, Henry W. ("memphishank") Jones, III, who scours through this stuff points out this SEC press release on how it plans to distribute the $ 10 million penalty it imposed on i2, If you are an interested party, feel free to comment to the SEC. My personal preference would be to better fund the SEC. It needs to keep being a better watchdog not push the onus to corporate management under SOX as I have written before.
The SEC still has its outstanding complaint against past executives of i2 for revenue recognition issues.
Talking about revenue recognition (and this is not my commentary on the specifics of the i2 case), I do think we need to revisit the principles:
a) the rules were written when license sales were the dominant portion of software vendor revenues. Today services are and as we move to SaaS models they will become even more so - we let the software license tail wag the recognition dog.
b) it is interesting that the SEC does not apply the same rigor to capitalization of software costs by buyers. I doubt it has filed any high profile cases compared to a whole bunch against vendors for issues in revenue recognition. Capitalization policies are not consistent across buyers.
c) In software negotiations, recognition issues cloud the fact that software pricing is way above where the market suggests it should be. I have seen several vendors hold the line on their maintenance percentage - "our accountants will not allow us" - but then turn around and give higher license discounts, and maintenance is tied to the lowered license fees and discounted that way. When those discounts approach 90% of list, talk about rigorous revenue recognition is well - as they say in Texas, cheap.
