Electronic Arts Inc. (EA) is a name that is familiar to most gamers. The company develops and distributes software products such as Battlefield, Mass Effect, Need for Speed, Dragon Age, The Sims, FIFA, and Madden NFL, 5 and provides services that require their hosting support for online games and massively multi-player online (MMO) play. The cornerstones of EA’s business strategy are to develop products and services across multiple platforms (such as PlayStation 3 and 4, Xbox, PCs, cellphones, and tablets), while narrowing their product portfolio to reduce production costs.
Some of  A’s $4 billion in annual sales comprise both a product element (the software game, delivered physically via a disk or digitally via the Internet) and a service element (online service such as matchmaking players on the Internet). EA reports revenues for product separately from services, where the latter represent about 40% of revenues. Service revenues, are growing as a proportion of sales and have a higher profit margin. The largest expenditure on their income statement is research and development, representing about half of the $2 billion in operating expenses.
One of EA’s largest assets is cash and cash equivalents, and one of their largest liabilities is deferred revenue from online games, both reported at over $1 billion. The deferred revenue pertains to payments received for online-enabled games that EA expects will need updates. Another smaller, but significant, asset is capitalized software development costs. Notes to the financial statements explain that when a project reaches the development stage and EA can demonstrate its feasibility and investment recover-ability, they begin capitalizing costs as an asset rather than expensing them, so as to later match these costs with future revenues from the project. Inventories represent a relatively small portion of assets, and are mostly finished goods. They are measured as the cost of labour, materials, and royalties payments, less any write-down for obsolescence.
EA owns equities as strategic investments. The company has more than 40 subsidiaries, which EA either founded or acquired by purchasing 100% of their outstanding shares.
You are engaged as the consultant for a company poised to launch a competing product for Mass Effect. This company’s representatives are aware the auditor did not find material misstatements in the financial statements, but would like to know whether they can take the reported numbers at face value when analyzing EA’s performance.

Required:
Prepare a report for your consulting client. Discuss recognition and measurement issues relating to the items mentioned above. Provide some relevant information on reporting for investments.