I am a corporate CPA and heavily involved in the world of revenue recognition. I know, I know...BORING! I can't blame anyone for reacting with that thought. For those outside the curious little world of rev rec it is, no doubt, boring. For those of us inside the asylum, however, life is never boring.
For those on the outside let me give a brief explanation as to why it is never boring, and then I will delve into the specifics of my thoughts for today.
For a company to survive in the long run it must make more money than it spends--no shocker there. Money is made when products and/or services are sold. In order to make a sale a company generally relies on its sales force. Folks who work in sales are paid on a commission model--the more you sell, the more you get paid. Simple enough so far. Well, a company can do all sorts of things with its commission model to incent its sales force to sell various items with more or less fervor. And, as you might expect, in large companies the commission model can become so complex that occasionally situations will arise where it appears the company is actually rewarding behavior that is contrary to the goals of the organization.
Sales folks are not dumb--like you and me they want to get paid as much as possible for the work they do. So they study the sales plan and the commission model and determine the best way to make the most amount of money. With a good commission model that will result in lots of revenue for the company. However, with a suspect commission model that can result in any number of unforeseen outcomes.
On top of all that you get to layer in Generally Accepted Accounting Principles--GAAP. Truth be told, even insiders often have a difficult time navigating the labyrinthine halls of GAAP revenue recognition. There are so many nuances to the guidance and strata to the guidance hierarchy that for those not trained in the craft a herculean effort is required to gain even a rudimentary understanding of the rules.
What this often leads to is a commission model that makes sense to the lay person and seems to have the best interests of the company (and the sales person) at heart. However, rare is the time that those who derive the commission model understand the havoc that GAAP will wreak on the timing of revenue recognition for any given transaction. Thus, a sales person will think she has made a sale that will net her $30,000 in the quarter. All too often, however, GAAP will require a deferral of the revenue for reasons that will seldom make sense to the sales force. So, you have the never ending friction of the sales person wanting to get a pound of flesh from the accountant, and the accountant wanting the sales person to stop being so self centered and ego centric. Good times! So, it's rarely boring.
My thought for the day is that this is troublesome because it frequently leads to the sales force acting against the best interests of the company. For instance, sales person X might sell a product for 100K and recognize an opportunity to sell additional services with that product. So, X dives in deeper, negotiates with the customer and comes away with two additional services deliverables for another 50K. Company is ecstatic. 100K of revenue now (when the product is delivered) and 50K in the future (when the services are delivered). X feels great because instead of netting 10K in the quarter, he is now netting 15K. Customer is happy because the services are value add and will improve their infrastructure and ability to service their own customers in the long run.
Well, not so fast. Depending on the deliverables and numerous company-internal factors, GAAP may require that the 100K of product revenue be deferred until the services are delivered. So, now there is 0K of revenue this quarter and X receives $0 just in time for Christmas. Once X gets his hand slapped like that one time he learns quickly. Next quarter a different customer wants the same 100K product plus 50K of additional services. X says we can give you the product, but the services are out of scope. Why? He wants his comp today. Maybe he has multipliers in the current quarter, maybe he's buying a new home and needs the $ for the down payment. Could be lots of reasons, but the long and the short is that the company just missed out on 50K of additional revenue over time because the compensation plan was not aligned with GAAP and the various types (and combinations) of products and services being sold.
This is a very high level view of the issue. Lots of layers and arguments on both sides of the issue, but suffice to say that it usually ends up being very messy. Believe it or not revenue recognition is quite a fascinating frontier if you are familiar with the issues. Plenty of work to be done here.
Tuesday, December 18, 2007
Thursday, December 06, 2007
Freedom requires religion
I've spent a little time reading comments and blogs regarding Mitt Romney's speech this morning. Let me start by saying that when he finished I turned to my wife and said, "I would be happy to hear that speech from any candidate." As a person of faith, I guess that is easy for me to say. Obviously his speech was very friendly to the religiously-minded and to those who like the idea of religion and faith playing a more prominent role in our society--not government, but society.
What has struck me is the number of individuals commenting or blogging who are concerned or outright threatened by Mitt's statement, "Freedom requires religion." That quote is taken from part of a larger statement--"Freedom requires religion, just as religion requires freedom. Freedom opens the windows of the soul so that man can discover his most profound beliefs and commune with God. Freedom and religion endure together, or perish alone."
Many of the opinions I have seen expressed in the public forum indicate Mitt's statement completely devalues atheists or others who don't practice religion. They make him out to be a dangerous theocrat and/or lunatic who will only advance the cause of the religious right and disregard all others. A few examples from posters at CNN.com:
"Freedom requires religion? Grrrr.....So, the faithless don't deserve freedom?"
"True freedom is freedom from religion. Freedom from believing in magical fairy tales with a happy ending and instead pursuing where we came from without mysticism."
"This guy is the same man as what we already have. Open your eyes! We need someone who will acknowledge that you can believe what you want but who won't push their own view upon us. I AM an atheist but yet I have to listen to someone like Mitt tell me that it's wrong? I find that wrong!"
"'Freedom requires religion.' What a stupid statement. If this man gets elected we can expect more of the same stupidity in the White House that we have now. Just as religion is not required to live a fair and just existence, nor is it required for anything else."
------------------
In my mind these individuals have incorrectly interpreted the point Mitt was making. I don't believe Mitt was referring to individuals. Rather, I believe he was referring to society. Individuals absolutely have the right to choose whether to believe in God and/or hold to the tenets of a religion. If certain individuals choose the path of atheism or of abstaining from organized religion then that is their right, and they should be respected in that right. However, to believe that a free society could operate effectively without religion is folly. Freedom does, indeed, require religion. To cite one example the communist USSR pursued a policy of religious intolerance, and we can all agree that freedom is not one of the adjectives that would be used to describe that society.
The point is that people have to be allowed the right to choose whether religion matters to them, and if it does, they need to be able to choose which religion they prefer to follow. That would include the ability to choose no religion at all. A truly free society--like ours--allows, even encourages, people to make that choice. If religion were not allowed or were discouraged in this country, then we would not be free. The same can be said if religion is forced--such action would destroy freedom.
I believe Mitt understands these things. Freedom requires religion because without that choice it is impossible to say that all members of society are truly free to follow their consciences. So, I applaud Mitt's statement. Perhaps it would have been more palatable if Mitt had said, "Freedom requires religion as well as the opportunity to be unreligious." However, that statement is clunky and doesn't fit with the rest of his speech. The speech was focused on faith and its role in American life. To suddenly turn and throw a sop to the atheists would have been pandering at its worst and would have diluted his message of religious tolerance. A broad mind would accept that religious tolerance as espoused in Mitt's speech includes not only acceptance of many different faiths, but also of those who have no religious faith. To declare otherwise is to simply demonstrate a person's own biases and pre-conceived notions.
It all reminds me of one of my favorite scenes from Dead Poet's Society. Robin Williams takes his students to the courtyard, selects a few and encourages them to go into the middle of the courtyard and do something. Soon, they find themselves marching in unison with the remaining students clapping the time of the march. Williams essentially points out they all fell victims to group think and were willing to be followers rather than leaders and individuals. So, the students then take great pleasure in walking around the courtyard in all sorts bizarre manners. One student, however, simply stands and observes. When Williams asks why, the student responds that he is exercising the right not to walk. Williams commends him by saying that his decision only further serves to illustrate the point.
I believe that is what we can learn from Mitt's speech if we choose to take the broader perspective. Freedom is not all marching in time with one religious dogma. It is having numerous religions--the gait of some of which may be bizarre. Freedom also enables individuals to choose to not participate in religion at all. But it would never force an individual into one camp or the other. A free society absolutely requires religion, but it most certainly does not require everyone to be religious.
What has struck me is the number of individuals commenting or blogging who are concerned or outright threatened by Mitt's statement, "Freedom requires religion." That quote is taken from part of a larger statement--"Freedom requires religion, just as religion requires freedom. Freedom opens the windows of the soul so that man can discover his most profound beliefs and commune with God. Freedom and religion endure together, or perish alone."
Many of the opinions I have seen expressed in the public forum indicate Mitt's statement completely devalues atheists or others who don't practice religion. They make him out to be a dangerous theocrat and/or lunatic who will only advance the cause of the religious right and disregard all others. A few examples from posters at CNN.com:
"Freedom requires religion? Grrrr.....So, the faithless don't deserve freedom?"
"True freedom is freedom from religion. Freedom from believing in magical fairy tales with a happy ending and instead pursuing where we came from without mysticism."
"This guy is the same man as what we already have. Open your eyes! We need someone who will acknowledge that you can believe what you want but who won't push their own view upon us. I AM an atheist but yet I have to listen to someone like Mitt tell me that it's wrong? I find that wrong!"
"'Freedom requires religion.' What a stupid statement. If this man gets elected we can expect more of the same stupidity in the White House that we have now. Just as religion is not required to live a fair and just existence, nor is it required for anything else."
------------------
In my mind these individuals have incorrectly interpreted the point Mitt was making. I don't believe Mitt was referring to individuals. Rather, I believe he was referring to society. Individuals absolutely have the right to choose whether to believe in God and/or hold to the tenets of a religion. If certain individuals choose the path of atheism or of abstaining from organized religion then that is their right, and they should be respected in that right. However, to believe that a free society could operate effectively without religion is folly. Freedom does, indeed, require religion. To cite one example the communist USSR pursued a policy of religious intolerance, and we can all agree that freedom is not one of the adjectives that would be used to describe that society.
The point is that people have to be allowed the right to choose whether religion matters to them, and if it does, they need to be able to choose which religion they prefer to follow. That would include the ability to choose no religion at all. A truly free society--like ours--allows, even encourages, people to make that choice. If religion were not allowed or were discouraged in this country, then we would not be free. The same can be said if religion is forced--such action would destroy freedom.
I believe Mitt understands these things. Freedom requires religion because without that choice it is impossible to say that all members of society are truly free to follow their consciences. So, I applaud Mitt's statement. Perhaps it would have been more palatable if Mitt had said, "Freedom requires religion as well as the opportunity to be unreligious." However, that statement is clunky and doesn't fit with the rest of his speech. The speech was focused on faith and its role in American life. To suddenly turn and throw a sop to the atheists would have been pandering at its worst and would have diluted his message of religious tolerance. A broad mind would accept that religious tolerance as espoused in Mitt's speech includes not only acceptance of many different faiths, but also of those who have no religious faith. To declare otherwise is to simply demonstrate a person's own biases and pre-conceived notions.
It all reminds me of one of my favorite scenes from Dead Poet's Society. Robin Williams takes his students to the courtyard, selects a few and encourages them to go into the middle of the courtyard and do something. Soon, they find themselves marching in unison with the remaining students clapping the time of the march. Williams essentially points out they all fell victims to group think and were willing to be followers rather than leaders and individuals. So, the students then take great pleasure in walking around the courtyard in all sorts bizarre manners. One student, however, simply stands and observes. When Williams asks why, the student responds that he is exercising the right not to walk. Williams commends him by saying that his decision only further serves to illustrate the point.
I believe that is what we can learn from Mitt's speech if we choose to take the broader perspective. Freedom is not all marching in time with one religious dogma. It is having numerous religions--the gait of some of which may be bizarre. Freedom also enables individuals to choose to not participate in religion at all. But it would never force an individual into one camp or the other. A free society absolutely requires religion, but it most certainly does not require everyone to be religious.
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