Symantec 2016 Annual Report Download - page 120

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our Consolidated Financial Statements and related notes included in this annual report in
accordance with generally accepted accounting principles in the U.S. requires us to make estimates, including
judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and
related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and
on various assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on a
regular basis and make changes accordingly. Historically, our critical accounting policies and estimates have not
differed materially from actual results; however, actual results may differ from these estimates under different
conditions. If actual results differ from these estimates and other considerations used in estimating amounts
reflected in our Consolidated Financial Statements included in this annual report, the resulting changes could
have a material adverse effect on our Consolidated Statements of Operations, and in certain situations, could
have a material adverse effect on our liquidity and financial condition.
We believe that the estimates described below represent our critical accounting policies and estimates, as
they have the greatest potential impact on our Consolidated Financial Statements. See also Note 1 of the Notes to
Consolidated Financial Statements included in this annual report.
Revenue recognition
We recognize revenue primarily pursuant to the requirements under the authoritative guidance on software
revenue recognition, and any applicable amendments or modifications. Revenue recognition requirements in the
software industry are very complex and require us to make estimates.
For software arrangements that include multiple elements, including perpetual software licenses and
maintenance or services, packaged products with content updates, and subscriptions, we allocate and defer
revenue for the undelivered items based on the fair value using vendor specific objective evidence (“VSOE”),
and recognize the difference between the total arrangement fee and the amount deferred for the undelivered items
as revenue. VSOE of each element is based on the price for which the undelivered element is sold separately. We
determine fair value of the undelivered elements based on historical evidence of our stand-alone sales of these
elements to third parties or from the stated renewal rate for the undelivered elements. When VSOE does not exist
for undelivered items, the entire arrangement fee is recognized ratably over the performance period. Our deferred
revenue consists primarily of the unamortized balance of enterprise product maintenance, consumer product
content updates, managed security services, subscriptions, and arrangements where VSOE does not exist.
Changes to the elements in a software arrangement, the ability to identify VSOE for those elements, the fair
value of the respective elements, and increasing flexibility in contractual arrangements could materially impact
the amount recognized in the current period and deferred over time.
For arrangements that include both software and non-software elements, we allocate revenue to the software
deliverables as a group and non-software deliverables based on their relative selling prices. In such
circumstances, the accounting principles establish a hierarchy to determine the selling price to be used for
allocating revenue to deliverables as follows: (i) VSOE, (ii) third-party evidence of selling price (“TPE”) and
(iii) best estimate of the selling price (“ESP”). When we are unable to establish a selling price using VSOE or
TPE, we use ESP to allocate the arrangement fees to the deliverables.
For our consumer products that include content updates, we recognize revenue ratably over the term of the
subscription upon sell-through to end-users, as the subscription period generally commences on the date of sale
to the end-user. We defer revenue and cost of revenue amounts for unsold product held by our distributors and
resellers.
We expect our distributors and resellers to maintain adequate inventory of consumer packaged products to
meet future customer demand, which is generally four or six weeks of customer demand based on recent buying
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