Case study: Accounting for Customer Solicitation at Workday Inc.

Please prepare thorough answers to the following questions. Be specific. Explain your answers.

1. What services does Workday provide to its customers? How does the company generate revenue streams?

2. What is your assessment of the companys financial performance? Do you think Workday has been successful?

3. What is your assessment of the companys revenue recognition policy with respect to its subscription fees? Are these accounting methods in accordance with US GAAP or IFRS? Evaluate the impact on the companys financial statements in 2013 if the company had always recognized revenue as the upfront cash payments were received. [Hint: try reconstructing the transactions made in 2013 by Workday with respect to revenue.]

4. Evaluate the impact on the companys financial statements in 2013 if the company had always expensed sales commission costs immediately, instead of capitalizing and amortizing them over time. What is your assessment of the companys policy of capitalizing and amortizing sales commission expenditures? Are these accounting methods in accordance with GAAP?

5. How should Workdays management respond, if at all, to the criticism that its policy of capitalizing and amortizing sales commissions distort the companys financial performance?

6. Is Workday worth $89 per share? Why or why not?