Vienna, Virginia-based Legent Corp proposes to recognise software maintenance revenues in accordance with the rateable system proposed by the American Institute of Certified Public Accountants, starting with its new fiscal year in October. Under the new standard, software companies would no longer take any proportion of product maintenance fees on receipt of a contract. They would instead defer all forms of maintenance revenues on such contracts, recognising them as earned over the life of each contract. Assuming its adoption of the new statement of position, which Legent notes remains contingent on the proposals being formally implemented, the effect would be to cut net profits for fiscal 1991 by about 15%. The projected reduction of its fiscal 1992 results would be somewhat less than in prior years. The new accounting standard has no effect on cash flow at Legent running at $10m a quarter, or on cash balances Legent had $145m in the bank on June 30. The company is considering taking a special charge to operating profits in fiscal 1991’s final period, which ends September 30. Such a charge, not expected to exceed $4m, would enable the company to dispose of balance sheet items remaining since its formation in 1989, and one time costs related to completing formation of its functional operating structure.
