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Effect of New Accounting Pronouncements | 12 Months Ended
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Oct. 31, 2018
Accounting Changes and Error Corrections [Abstract] |
Effect of New Accounting Pronouncements | Note 14. Effect of New Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, "Revenue from Contracts with Customers (Topic 606)," which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605).” This ASU requires an entity to recognize revenue when goods are transferred or services are provided to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU also requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Since the issuance of Topic 606, the FASB has issued several amendments to the ASU, including amendments that defer the initially proposed adoption date, clarify accounting for licenses of intellectual property, and identify performance obligations. Topic 606 is effective for the Company beginning in fiscal 2019, including interim periods within that reporting period. The ASU permits two retrospective methods for adoption. The Company will adopt Topic 606 using the modified retrospective method under which the cumulative effect of initially applying the guidance is recognized at the date of initial application. Under the modified retrospective transition method, the Company evaluated each contract that is effective on the adoption date as if that contract had been accounted for under Topic 606 from contract inception. Some revenue that would have been recognized in future periods under Topic 605 will be recast under Topic 606 as if the revenue had been recognized in prior periods. As this transition method requires that the Company does not adjust historical reported revenue amounts, the revenue that would have been recognized under this method prior to the adoption date will be a cumulative adjustment to retained earnings and will not be recognized as revenue in future periods as previously planned. Hence, the Company expects an immaterial percentage of its year-end backlog to be adjusted to retained earnings upon adoption. The Company will also have related changes to its accounts receivable and deferred revenue balances. The Company derives the majority of its revenue from Technology Subscription License (TSL) contracts. The Company believes that the promised licenses of software (i.e., functional intellectual property) and the promise to provide substantive, timely, and technologically relevant updates and services in the Company's TSL contracts reflect inputs to a combined item that represent a single overall promise to provide customer access to a suite of EDA software in an integrated solution that will evolve as the Company's customers’ industries evolve through rapid technology changes. Accordingly, the Company has concluded that this single overall promise will be recognized as revenue over the term of the contract period. Accordingly, the Company expects that there will not be a material change in the nature and timing of revenue recognition for its TSL contracts under Topic 606. The timing of revenue recognition for the Company's upfront products, maintenance and professional services will remain substantially unchanged. Since VSOE for undelivered elements is not a requirement for separation, revenue for IP products will be recognized upon delivery as opposed to over the contract period. Topic 606 also requires the deferral of incremental costs of obtaining a contract with a customer. This will require the Company to capitalize incremental costs such as commissions and other costs directly related to obtaining customer contracts and amortize those costs over the period the assets are expected to contribute future cash flows. As commissions paid for renewals are commensurate with the amounts paid for initial contracts, the deferred incremental costs will be recognized over the contract term. Under the existing rules, the Company expenses commissions as incurred. There will be an immaterial balance sheet impact at the date of adoption from recognizing the deferred incremental costs of obtaining contracts with customers. This change will not have a material impact to the Company's commission expenses as the amortization of capitalized commissions under Topic 606 will be similar to the amount of commissions expense for fiscal year 2019 under Topic 605. In February 2016, the FASB issued ASU 2016-2, "Leases (Topic 842)," which supersedes the lease requirements in "Leases (Topic 840)." This ASU requires a lessee to recognize a right-of-use asset and a lease payment liability for most leases in the Consolidated Statement of Financial Position. This ASU also makes minor changes to lessor accounting and aligns with the new revenue recognition guidance. This ASU will be effective for fiscal 2020, including interim periods within that reporting period, and earlier adoption is permitted. The Company is currently evaluating its lease portfolio and the impact of adoption is expected to be material to the consolidated balance sheet. In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory.” This ASU requires the immediate recognition of current and deferred income tax effects of intra-entity transfers of assets other than inventory. This ASU will be effective for fiscal 2019, including interim periods within that reporting period, and earlier adoption is permitted. As a result of the adoption, the Company expects to record a decrease of approximately $129.8 million in retained earnings as of the beginning of the period of adoption, with a corresponding decrease in prepaid taxes related to the unamortized tax expense attributed to intra-entity transfers of assets (other than inventory) previously deferred. Upon adoption, the Company will recognize the income tax consequences of any new intra-entity transfer of assets other than inventory in the consolidated statement of income in the period when the transaction takes place.

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- Definition The entire disclosure of changes in accounting principles, including adoption of new accounting pronouncements, that describes the new methods, amount and effects on financial statement line items. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 + Details
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