TECHNOLOGY PRACTICE GROUP

Accounting Policies 101

There are certain accounting terms that no technology company wants to be associated with. For instance, “cook the books,” “voodoo accounting,” “cookie jar accounting,” “material weakness” or the term “restatement.”

Recently Groupon, a publicly traded deal-of-the-day website, has restated its financial results due to accounting policy issues and received a letter of comments relating to “significant deficiencies” in its internal controls. In addition, Zynga, a publicly traded social gaming company has restated its financial statements due to an error in recognizing revenue. Ouch.

The point is that technology companies ranging from early-stage startups to revenue generating cash cows must develop sound accounting policies and related procedures. Complexities may arise due to new and emerging business models, accounting for certain types of development costs and accounting issues relating to stock-based compensation.

If you have any questions regarding developing or modifying current accounting policies, please don’t hesitate to reach out to us.

All the best,

Steve, Jeff and GeorgeTechnology Practice GroupBatchelor, Frechette, McCrory, Michael & Co.

CERTIFIED PUBLIC ACCOUNTANTS | BUSINESS CONSULTANTS

Accounting policies to consider:

1) Revenue recognition

2) Internal-use software costs

3) Research and development costs

4) Stock-based compensation

5) Refunds

6) Customer loyalty and rewards

7) Merchant payments

8) Sales tax

DID YOU KNOW?A Message from the Tech Practice Group

SUMMER 2012

Jeff Allain (left) and Stephen Noyes (right) welcome Attorney Ted Howell of Partridge Snow & Hahn to the BFMM office.

40 Westminster Street, Suite 600Providence, RI 02903

Steve NoyesTelephone: (800) 417-3280 x3028E-mail: snoyes@bfmmcpa.com

Jeff AllainTelephone: (800) 417-3280 x3039E-mail: jallain@bfmmcpa.com

Suggestions to consider when creating accounting related policies:

1. Review the financial statement disclosures (footnote 1) of publicly traded companies that might be a comparable company in a similar market sector. Information can be found at www.sec.gov/edgar.shtml.

2. Develop an internal audit committee to assist with the creation of accounting related policies. Ensure that at least one individual has financial expertise and is fluent with Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS) in the United States of America.

3. Retain the services of a reputable CPA Firm such as BFMM’s Tech Practice Group. Their expertise will be able to assist you with developing the accounting policies.

4. Ensure that those charged with the governance of the company have formally approved the various accounting policies. As the landscape in the technology sector is continuously changing, these policies should be reviewed frequently to ensure that they are up to date.

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