iSoft annual report - notes on the financial statement

 

In keeping with Australian Accounting Standards, iSoft’s annual accounts, which are published today [1 September 2009],  include “certain critical accounting estimates”.

These estimates take into account iSoft’s contractual arrangements with CSC to supply the Lorenzo system. CSC is the main NPfIT local service provider to NHS hospitals in England, outside of London and the south.

Where the annual accounts have involved a “higher degree of judgement or complexity”, or “assumptions and estimates are significant to the financial report” these have been disclosed in Note 2 [on page 82 of iSoft’s annual report].

The note refers to the “Consolidated Entity” which comprises the iSOFT Group Limited, its subsidiaries and interests.

It says that if the arrangements between CSC and the Consolidated Entity are terminated, because of, say, material disputes regarding obligations, including the scope of delivery or payments, this could affect iSoft’s accounts.

The Consolidated Entity’s largest customer contract is the CSC contract in relation to the deployment of the National Programme for IT (NPfIT) for the National Health Service in England.

The CSC Contract contributed approximately 23.5% (2008: 19%) to the Consolidated Entity’s total revenue in the year to 30 June 2009.

Says iSoft’s annual report:

“If CSC were to terminate the CSC Contract for failure of the Consolidated Entity to meet material obligations under the CSC Contract or if there were material disputes regarding obligations, including scope of delivery or payments, these could have an adverse effect on the Consolidated Entity’s operating and financial performance.”

Were there to be any legal tension between CSC and iSoft it would not be the first time.

This is Note 2 in full:

Critical accounting estimates and judgements

“The preparation of a financial report in conformity with Australian Accounting Standards requires Management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses.

“The estimates and associated assumptions are based on historical experience and various other factors, including expectations of future events that may have a financial impact on the Consolidated Entity or the Company and that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources.

“The Consolidated Entity and the Company make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

“In preparing this consolidated financial report of the Consolidated Entity and
financial report of the Company, the significant judgments made by Management in applying accounting policies were the same as those that applied to the financial report for the comparative period.

“The Consolidated Entity and the Company assess impairment at each reporting date by evaluating conditions specific to the Consolidated Entity or the Company that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value in use calculations performed in assessing recoverable amounts incorporate a number of key estimates.

“Should the projected turnover figures differ significantly from the budgeted figures incorporated in the value in use calculations then an impairment loss would be recognised, up to the maximum carrying value of goodwill and intangibles at 30 June 2009.

“Accrued revenue represents earned revenue which has been calculated on a percentage of completion basis and which has not yet been invoiced.

“The calculation of revenue recognised on a percentage of completion basis over the period of installation, implementation and provision of services requires accurate forecasts of costs to completion which are generally difficult to ascertain and are therefore subject to judgement.

“The Consolidated Entity’s largest customer contract is the Computer Sciences Corporation (CSC) Contract in relation to the deployment of the National Programme for IT (NPfIT) for the National Health Service (NHS) in England.

“The contract with CSC consists of a product development contract with additional development services, implementation and maintenance services.

“Revenue for product development is booked as earned and on a percentage of completion basis, as licence revenue.

“Revenue for additional development services and implementation is booked as earned and maintenance services will be booked on a straight line basis over the life of the maintenance and support component of the contract.

“Refer accounting policy Note 1 (e). The CSC Contract contributed approximately 23.5% (2008: 19%) to the Consolidated Entity’s total revenue in the year to 30 June 2009.

“The CSC Contract is primarily a time and materials contract with a set of arrangements regarding the timing and delivery of Lorenzo modules.

“The Revenue recognised is based on estimation of future cost to expected completion and inflation rates have been assumed for the relevant period.

“If CSC were to terminate the CSC Contract for failure of the Consolidated Entity to meet material obligations under the CSC Contract or if there were material disputes regarding obligations, including scope of delivery or payments, these could have an adverse effect on the Consolidated Entity’s operating and financial performance.”

iSoft’s annual report  

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