Salesforce.com was recently the target of criticism from Mark Moerdler of Bernstein Research for its reporting practices. While the author emphasised that the SaaS firm was doing nothing illegal, he argued that the Cloud giant was adopting an approach to financial reporting that was less conservative than its peers, and also took Salesforce.com to task for a riskier-than-average approach to investing corporate cash.
And speaking at a special Q&A session for analysts, CEO Benioff admitted he was “disappointed” by the article, countering that his company’s accounting practices are “conservative” as opposed to “aggressive”:
“When we went public in 2004 we had a very detailed conversation with our auditors internally, and the FCC, on what is the appropriate accounting for Cloud Computing,” he explained. “And if you look at Miller Revenue Recognition Guide, you’ll find us cited several times throughout it because those are policies that we agree would be best for companies like us. ”
Elaborating on the practices adopted by Salesforce.com he said:
“We’re not a licence-based company. We don’t recognise revenue, for example, for the quarter that we sign the agreement like [Microsoft]. So when we have a quarter and we sign agreements, those agreements are amortised over a period of time. You don’t want to recognise all the revenue in the quarter when the deal we signed with Coca-Cola or Verizon, which are third quarter deals, that doesn’t make any sense for us. Microsoft would recognise the revenue. Is that right? What do we do? We amortise that revenue over the life of the agreement. We recognise the revenue based on the license fee agreement and the amount of revenue that we deliver. And then we also amortise that commission expense as an asset and we amortise that as well. Those are not aggressive accounting procedures, those are standardised account procedures. ”
Benioff added that Salesforce.com was now a “pioneer” in this respect, as all the other Cloud Computing companies had all adopted the same accounting practices, and that it was “ludicrous” to suggest that they should have the same accounting approaches as Microsoft:
“Have you seen every other Cloud Computing company, they all follow this exact same model. The amortisation of the revenue and the amortisation of the commission that is an asset against that revenue. Because the matching principle is a critical part of accounting. ”
He also added mischievously:
“Microsoft should also use the matching principle. So when Microsoft recognise revenue on a licensing agreement they pay that salesperson they should also then recognise that expense of that time because they should match the revenue with the expense. For us, we always use that same matching principle. It was a fundamental aspect of our accounting when we went public, and we haven’t made any changes to that and also when you look at any other Cloud Computing company, it is how everybody else does it as well. ”
Conceding that he felt a “weight of responsibility” for the other Cloud Computing firms that had used the same model when going public, he concluded:
“ I do feel like at some level these companies are all following us. So when I see comment like that, I’m like do they not see all these other 1,000 Cloud Computing companies who are amortising revenue over the life of agreements and amortising their commission as an asset that is then amortised as well. So when I read that article I was disappointed. ”
tags for Dreamforce: accounting for growth in the Cloud
