Significant Accounting Policies (Policies)

12 Months Ended

Jan. 31, 2021

Accounting Policies [Abstract]

Business Description [Policy Text Block]

BUSINESS

QAD is a leader in cloud-based enterprise software solutions for global manufacturing companies.  The Company’s solutions, called QAD Adaptive Applications, are designed specifically for automotive suppliers, life sciences, consumer products, food and beverage, high technology and industrial products manufacturers. QAD software offers a full set of core manufacturing enterprise resource planning (ERP) and supply chain management capabilities. The Company’s architecture, called the QAD Enterprise Platform, allows customers to upgrade existing functionality by module; and extend or create new applications, providing manufacturers with the flexibility they need to innovate and rapidly adapt to change. QAD was founded in 1979, incorporated in California in 1986 and reincorporated in Delaware in 1997.

Consolidation, Policy [Policy Text Block]

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of QAD Inc. and all of its subsidiaries. All subsidiaries are wholly-owned and all significant balances and transactions among the entities have been eliminated from the consolidated financial statements.

Use of Estimates, Policy [Policy Text Block]

USE OF ESTIMATES

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles and, accordingly, include amounts based on informed estimates and judgments of management that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Company’s financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Significant items subject to such estimates and assumptions made by management include, but are not limited to, the determination of:

● revenue recognition;

● the fair value of assets acquired and liabilities assumed for business combinations;

● the average period of benefit associated with deferred contract acquisition and fulfillment costs;

● the fair value of certain stock awards issued;

● the useful life and recoverability of long-lived and intangible assets; and

● the recognition, measurement and valuation of deferred income taxes.

The World Health Organization declared in March 2020 that the outbreak of the coronavirus disease named COVID-19 constituted a pandemic, which lasted through the rest of fiscal 2021 and beyond. The Company has undertaken measures to protect its employees, partners and customers. There can be no assurance that these measures will be effective, however, or that the Company can adopt them without adversely affecting its business operations. In addition, the coronavirus outbreak has created and may continue to create significant uncertainty in global financial markets, which may decrease technology spending, depress demand for the Company’s solutions and harm its business and results of operations. As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the financial statements.

Reclassification, Comparability Adjustment [Policy Text Block]

RECLASSIFICATION

Certain prior year amounts included in Notes to Consolidated Financial Statements have been reclassified for consistency with the current year presentation. 

Foreign Currency Transactions and Translations Policy [Policy Text Block]

FOREIGN CURRENCY TRANSLATIONS AND TRANSACTIONS

The financial position and results of operations of the Company’s foreign subsidiaries are generally determined using the country’s local currency as the functional currency. Assets and liabilities recorded in foreign currencies are translated at the exchange rates on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to other comprehensive income (loss), which is included in “Accumulated other comprehensive loss” within the Consolidated Balance Sheets.

Gains and losses resulting from foreign currency transactions and remeasurement adjustments of monetary assets and liabilities not held in an entity’s functional currency are included in earnings. Foreign currency transaction and remeasurement losses (gains) for fiscal 2021, 2020 and 2019 totaled $2.0 million, $(0.1) million, and $(0.2) million, respectively, and are included in “Other expense (income), net” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).

Cash and Cash Equivalents, Policy [Policy Text Block]

CASH AND EQUIVALENTS

Cash and equivalents consist of cash and short-term marketable securities with maturities of less than 90 days at the date of purchase. The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents. At January 31, 2021 and 2020, the Company’s cash and equivalents consisted of money market mutual funds invested in U.S. Treasury and government securities, deposit accounts and certificates of deposit. 

Receivable [Policy Text Block]

ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consisted of the following as of January 31:

	2021			2020
	(in thousands)
Accounts receivable	$	85,949		$	83,908
Less allowance for:
Doubtful accounts		(1,101	)		(543	)
Sales adjustments		(2,239	)		(2,397	)
Accounts receivable, net	$	82,609		$	80,968

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The collectability of accounts receivable is reviewed each period by analyzing balances based on age. Specific allowances for doubtful accounts are recorded for any balances that the Company determines may not be fully collectible due to a customer’s inability to pay. Our expected loss allowance methodology is developed using historical collection experience, consideration of current and anticipated future economic conditions and other relevant data. Provisions to the allowance for bad debts are included as bad debt expense in “General and Administrative” expense. The determination to write-off specific accounts receivable balances is based on the likelihood of collection and past due status. Past due status is based on invoice date and terms specific to each customer.

The Company does not generally provide a contractual right of return; however, in the course of business sales adjustments related to customer dispute resolution may occur. A provision is recorded against revenue for estimated sales adjustments in the same period the related revenues are recorded or when current information indicates additional amounts are required. These estimates are based on historical experience, specifically identified customers and other known factors.

Assets Held for Sale [Policy Text Block]

SALE OF BUILDING

During the second quarter of fiscal 2020, the Company vacated its building located in Dublin, Ireland, and moved its operations into leased office space. The sale of the building was completed in the third quarter of fiscal 2021 for $1.5 million in proceeds.

Financial Instruments and Concentration of Credit Risk [Policy Text Block]

FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

The carrying amounts of cash and equivalents, short-term investments, accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments. The Company’s note payable bears a variable market interest rate, subject to certain minimum interest rates. Therefore, the carrying amount outstanding under the note payable reasonably approximates fair value.

Concentration of credit risk with respect to trade receivables is limited due to a large number of customers comprising the Company’s customer base, and their dispersion across many different industries and locations throughout the world. No single customer accounted for 10% or more of the Company’s total revenue during the fiscal years ended January 31, 2021 and 2020. In the fiscal year ended January 31, 2019 one customer accounted for 10% of total revenue. During fiscal 2019 the Company performed a large implementation project with a customer which included consulting services the customer needed to help perform activities their employees were responsible for.  Without these services, the revenue from this customer would have been less than 10%.In addition, no single customer accounted for 10% or more of accounts receivable at January 31, 2021 or 2020.

Property, Plant and Equipment, Policy [Policy Text Block]

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Additions and significant improvements to property and equipment are capitalized, while maintenance and repairs are expensed as incurred. For financial reporting purposes, depreciation is generally expensed via the straight-line method over the useful life of three years for computer equipment and software, five years for furniture and office equipment, 10 years for building improvements, and 39 years for buildings. Leasehold improvements are depreciated over the shorter of the lease term or the useful life of five years.

Certain costs associated with software developed for internal use, including payroll costs for employees, are capitalized once the project has reached the application development stage and are included in property and equipment classified as software. These costs are amortized using the straight-line method over the expected useful life of the software, beginning when the asset is substantially ready for use. Costs incurred related to the preliminary project stage, training and research and development are expensed as incurred.

Property and equipment, net consisted of the following as of January 31:

	2021			2020
	(in thousands)
Buildings and building improvements	$	29,562		$	29,902
Computer equipment and software		18,858			18,345
Furniture and office equipment		8,174			8,004
Leasehold improvements		7,685			7,382
Land		3,850			3,850
Automobiles		65			65
		68,194			67,548
Less accumulated depreciation and amortization		(42,596	)		(38,861	)
	$	25,598		$	28,687

The changes in property and equipment, net, for the fiscal years ended January 31 were as follows:

	2021			2020
	(in thousands)
Cost
Balance at February 1	$	67,548		$	68,794
Additions		1,933			5,671
Adjustments (1)		196			(2,234	)
Disposals		(2,062	)		(4,286	)
Impact of foreign currency translation		579			(397	)
Balance at January 31		68,194			67,548
Accumulated depreciation
Balance at February 1		(38,861	)		(39,173	)
Depreciation		(5,011	)		(5,034	)
Adjustments (1)		(71	)		880
Disposals		1,744			4,207
Impact of foreign currency translation		(397	)		259
Balance at January 31		(42,596)			(38,861	)
Property and equipment, net at January 31	$	25,598		$	28,687

(1) Fiscal 2020 adjustments relate primarily to a building re-classified to assets held for sale in the second quarter of fiscal 2020.

Depreciation and amortization expense of property and equipment for fiscal 2021, 2020 and 2019 was $5.2 million, $5.1 million, and $4.7 million, respectively.

Capitalization of Software Costs, Policy [Policy Text Block]

CAPITALIZED SOFTWARE COSTS

The Company capitalizes software purchased from third parties or through business combinations as acquired software technology, if the related software under development has reached technological feasibility. In addition, the Company capitalizes software development costs incurred in connection with the localization and translation of its products once technological feasibility has been achieved based on a working model. A working model is defined as an operative version of the computer software product that is completed in the same software language as the product to be ultimately marketed, performs all the major functions planned for the product and is ready for initial customer testing (usually identified as beta testing).

The amortization of capitalized software costs is the greater of the straight-line basis over three years, the expected useful life, or a computation using a ratio of current revenue for a product compared to the estimated total of current and future revenues for that product.

Capitalized software costs and accumulated amortization at January 31 were as follows:

	2021			2020
	(in thousands)
Capitalized software costs:
Capitalized software development costs	$	3,655		$	3,356
Acquired software technology		6,191			135
		9,846			3,491
Less accumulated amortization		(1,866	)		(1,569	)
Capitalized software costs, net	$	7,980		$	1,922

The Company‘s capitalized software development costs relate to translations and localizations of QAD Adaptive Applications. Acquired software technology costs primarily relate to intellectual property purchased during the fourth quarter of fiscal 2021.

It is the Company’s policy to write off capitalized software development costs once fully amortized. Accordingly, during fiscal 2021, $1.0 million of costs and accumulated amortization was removed from the Consolidated Balance Sheet and was related to capitalized software development costs which was fully amortized during fiscal 2021.

Amortization of capitalized software costs for fiscal 2021, 2020 and 2019 was $1.3 million, $0.9 million and $0.6 million, respectively and was included in “Cost of license” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).

The following table summarizes the estimated amortization expense relating to the Company’s capitalized software costs as of January 31, 2021:

Fiscal Years	(in thousands)
2022	$	2,276
2023		1,913
2024		1,469
2025		1,212
Thereafter		1,110
	$	7,980

Business Combinations Policy [Policy Text Block]

BUSINESS COMBINATION

The Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed, based upon their estimated fair values at the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets.

These assumptions and estimates are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. The estimates in valuing certain of the intangible assets can include, but are not limited to, discount rates, future expected cash flows from software license sales, subscriptions, support agreements, consulting contracts, margins, and customer retention rates, as well as assumptions about the period of time the assets will continue to be used in the Company’s combined product portfolio.

The Company estimates the fair value of the contingent consideration issued in business combinations using a Monte Carlo valuation approach, as well as unobservable inputs, such as forecasted financial information, reflecting its assessment of the assumptions market participants would use to value these liabilities. The fair values of liability-classified contingent consideration are remeasured at each reporting period with any changes in the fair value recorded as income or expense. The potential undiscounted amount of all future cash payments under the contingent consideration agreements is between zero and $10.2 million as of January 31, 2021. 

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

IMPAIRMENT ASSESSMENT OF LONG-LIVED ASSETS AND INTANGIBLES OTHER THAN GOODWILL

The Company evaluates long-lived assets, capitalized software and other intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. This includes but is not limited to significant adverse changes in business climate, market conditions, or other events that indicate an asset's carrying amount may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate. If the undiscounted cash flows used in the test for recoverability are less than the carrying amount of these assets, the carrying amount of such assets is reduced to fair value.

The Company reviews the impairment of right-of-use (ROU) assets consistent with the approach applied for the Company’s other long-lived assets. The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations.

There were no impairments of long-lived assets, capitalized software, or other intangible assets during fiscal 2021, 2020, and 2019, respectively.

Lessee, Leases [Policy Text Block]

LEASES

The Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, the Company directs the use of the asset and the Company obtains substantially all the economic benefits of the asset. These leases are recorded as ROU assets and lease obligation liabilities for leases with terms greater than 12 months.  ROU assets represent the Company’s right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Company's obligation to make payments over the life of the lease. An ROU asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over the life of the lease. Initial direct costs are included as part of the ROU asset upon commencement of the lease. Since the interest rate implicit in a lease is generally not readily determinable, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value. The Company used the incremental borrowing rate on February 1, 2019 for all leases that commenced prior to that date.

The Company has applied the practical expedient available for lessees in which lease and non-lease components are accounted for as a single lease component for all asset classes. The Company also elected the practical expedient to exclude short-term leases (leases with original terms of 12 months or less) from ROU asset and lease liability accounts.

The Company’s operating lease expense is recognized on a straight-line basis over the lease term. Amortization expense of the ROU asset for finance leases is recognized on a straight-line basis over the lease term and interest expense for finance leases is recognized based on the incremental borrowing rate. Variable lease payments are expensed as incurred for both operating and finance leases. Variable payments change due to facts or circumstances occurring after the commencement date, other than the passage of time, and do not result in a remeasurement of lease liabilities. The Company’s variable lease payments include payments to lessors for taxes, maintenance, insurance and other operating costs as well as payments that are adjusted based on a CPI index or rate and payments in excess of fixed amounts, such as excess mileage charges on leased autos. The Company's lease agreements do not contain any significant residual value guarantees or restrictive covenants.

Share-based Payment Arrangement [Policy Text Block]

STOCK-BASED COMPENSATION

The Company accounts for share-based payments (equity awards) to employees in accordance with ASC 718, Compensation—Stock Compensation (ASC 718), which requires that share-based payments (to the extent they are compensatory) be recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) based on the fair values of the equity awards as measured at the grant date. The Company recognizes the impact of forfeitures on stock-based compensation expense as they occur. The fair value of an equity award is recognized as stock-based compensation expense ratably over the vesting period of the equity award. Determining the fair value of equity awards at the grant date requires judgment.

Fair Value of RSUs

The fair value of restricted stock units (RSUs) is determined on the grant date of the award as the market price of the Company’s common stock on the date of grant, reduced by the present value of estimated dividends foregone during the vesting period. Judgment is required in determining the present value of estimated dividends foregone during the vesting period. The Company estimates the dividends for purposes of this calculation based on the Company’s historical dividend payments per share, which has remained consistent over the last four years. 

Fair Value of PSUs

The fair value of performance stock units (PSUs) is determined on the grant date of the award as the market price of the Company’s common stock on the date of grant, reduced by the present value of estimated dividends foregone during the vesting period. Judgment is required in determining the present value of estimated dividends foregone during the vesting period. The Company estimates the dividends for purposes of this calculation based on the Company’s historical dividend payments per share, which has remained consistent over the last three years. The number of PSUs earned and eligible to vest are determined based on attainment of specified performance criteria. To determine the anticipated achievement of the performance objectives, management must make assumptions regarding the likelihood of the Company meeting those targets. The number of PSUs that vest will be predicated on the Company achieving performance objectives during the measurement period subsequent to the date of grant. Depending on the financial performance levels achieved, a percentage of the PSUs (0% to 200% of the target award) will vest to the grantees of those stock units.

Fair Value of SARs

The fair value of stock-settled stock appreciation rights (SARs) is determined on the grant date of the award using the Black-Scholes-Merton valuation model. One of the inputs to the Black-Scholes-Merton valuation model is the fair market value of the Company’s stock on the date of grant. Judgment is required in determining the remaining inputs to the Black-Scholes-Merton valuation model. These inputs include the expected life, volatility, the risk-free interest rate and the dividend rate. The following describes the Company’s policies with respect to determining these valuation inputs:

Expected Life - The expected life valuation input includes a computation that is based on historical vested SAR exercises and post-vest expiration patterns and an estimate of the expected life for SARs that were fully vested and outstanding. Furthermore, based on the Company’s historical pattern of SAR exercises and post-vest expiration patterns the Company determined that there are two discernible populations which include the Company’s directors and officers (D&O) and all other QAD employees. The estimate of the expected life for SARs that were fully vested and outstanding is determined as the midpoint of a range as follows: the low end of the range assumes the fully vested and outstanding SARs are exercised or expire unexercised on the vest date and the high end of the range assumes that these SARs are exercised or expire unexercised upon the contractual termination date.

Volatility - The volatility valuation input is based on the historical volatility of the Company’s common stock, which the Company believes is representative of the expected volatility over the expected life of SARs.

Risk-Free Interest Rate - The risk-free interest rate is based on the U.S. Treasury constant maturities in effect at the time of grant for the expected term of the SARs.

Dividend Rate - The dividend rate is based on the Company’s historical dividend payments per share.

The Company records deferred tax assets for equity awards that result in deductions on its income tax returns, based on the amount of stock-based compensation recognized and the fair values attributable to the vested portion of those equity awards. Because the deferred tax assets the Company records are based upon the stock-based compensation expenses in a particular jurisdiction, the aforementioned inputs that affect the fair values of equity awards may also indirectly affect income tax expense. If the tax deduction is less than the deferred tax asset, the calculated shortfall would increase income tax expense. If the tax deduction is more than the deferred tax asset, the calculated windfall would decrease income tax expense.

Comprehensive Income, Policy [Policy Text Block]

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes changes in the balances of items that are reported directly as a separate component of stockholders’ equity on the Consolidated Balance Sheets. The components of comprehensive income (loss) are net income (loss) and foreign currency translation adjustments. The Company does not provide for income taxes on foreign currency translation adjustments since it does not provide for taxes on the unremitted earnings of its foreign subsidiaries. The changes in accumulated other comprehensive loss are included in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).

Advertising Cost [Policy Text Block]

ADVERTISING EXPENSES

Advertising costs are expensed as incurred. Advertising expenses were $0.9 million, $0.6 million and $0.7 million for fiscal years 2021, 2020 and 2019.

Research, Development, and Computer Software, Policy [Policy Text Block]

RESEARCH AND DEVELOPMENT

All costs incurred to establish the technological feasibility of the Company’s software products are expensed to research and development (R&D) as incurred. R&D expenses totaled $56.1 million, $54.7 million and $54.0 million in fiscal years 2021, 2020 and 2019, respectively. 

Non-operating Expense, Net [Policy Text Block]

OTHER EXPENSE (INCOME), NET

The components of other expense (income), were as follows:

	Years Ended January 31,
	2021			2020			2019
	(in thousands)
Interest income	$	(923	)	$	(2,782	)	$	(2,600	)
Interest expense		591			630			643
Foreign exchange losses (gains)		2,018			(50	)		(229	)
Change in fair value of interest rate swap		93			368			51
Other expense (income), net		98			(250	)		(209	)
Total other expense (income), net	$	1,877		$	(2,084	)	$	(2,344	)

Earnings Per Share, Policy [Policy Text Block]

COMPUTATION OF NET INCOME (LOSS) PER SHARE

Net income (loss) per share of Class A common stock and Class B common stock is computed using the two-class method. Holders of Class A common stock are entitled to cash or stock dividends equal to 120% of the amount of such dividend payable with respect to a share of Class B common stock.

The following table sets forth the computation of basic and diluted net income (loss) per share:

	Years Ended January 31,
	2021			2020			2019
	(in thousands, except per share data)
Net income (loss)	$	11,065		$	(15,949	)	$	10,428
Less: dividends declared		(5,780	)		(5,617	)		(5,479	)
Undistributed net income (loss)	$	5,285		$	(21,566	)	$	4,949
Net income (loss) per share – Class A Common Stock
Dividends declared	$	4,982		$	4,827		$	4,696
Allocation of undistributed net income (loss)		4,559			(18,519	)		4,243
Net income (loss) attributable to Class A common stock	$	9,541		$	(13,692	)	$	8,939
Weighted average shares of Class A common stock outstanding—basic		17,274			16,709			16,267
Weighted average potential shares of Class A common stock		748			—			1,585
Weighted average shares of Class A common stock and potential common shares outstanding—diluted		18,022			16,709			17,852
Basic net income (loss) per Class A common share	$	0.55		$	(0.82	)	$	0.55
Diluted net income (loss) per Class A common share	$	0.53		$	(0.82	)	$	0.50
Net income (loss) per share – Class B Common Stock
Dividends declared	$	798		$	790		$	783
Allocation of undistributed net income (loss)		726			(3,047	)		706
Net income (loss) attributable to Class B common stock	$	1,524		$	(2,257	)	$	1,489
Weighted average shares of Class B common stock outstanding—basic		3,326			3,289			3,256
Weighted average potential shares of Class B common stock		67			—			166
Weighted average shares of Class B common stock and potential common shares outstanding—diluted		3,393			3,289			3,422
Basic net income (loss) per Class B common share	$	0.46		$	(0.69	)	$	0.46
Diluted net income (loss) per Class B common share	$	0.45		$	(0.69	)	$	0.44

Potential common shares consist of the shares issuable upon the release of RSUs and PSUs, and the exercise of SARs. The Company’s unvested RSUs and PSUs, and unexercised SARs are not considered participating securities as they do not have rights to dividends or dividend equivalents prior to release or exercise. 

The following table sets forth the number of potential common shares not included in the calculation of diluted earnings per share because their effects were anti-dilutive:

	Years Ended January 31,
	2021		2020		2019
	(in thousands)
Class A		190		2,473		325
Class B		—		221		—

New Accounting Pronouncements, Policy [Policy Text Block]

RECENT ACCOUNTING PRONOUNCEMENTS

With the exception of those discussed below, there have been no recent changes in accounting pronouncements issued by the Financial Accounting Standards Board (FASB) or adopted by the Company during the fiscal year ended  January 31, 2021, that are of significance, or potential significance, to the Company.

Recent Accounting Pronouncements Adopted

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates “Step 2” from the goodwill impairment test. QAD adopted the new standard on February 1, 2020, the first day of fiscal 2021. The adoption of this new standard did not have an impact on QAD’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, which includes the Company's accounts receivables and contract assets. QAD adopted the new standard on February 1, 2020, the first day of fiscal 2021, using the modified retrospective approach. The adoption of this standard did not have a material impact on QAD’s consolidated financial statements. The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience, consideration of current and anticipated future economic conditions and other relevant data.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset and which costs to expense. The Company adopted the new standard on February 1, 2020, the first day of fiscal 2021. The adoption of this standard did not have a material impact on QAD’s consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued new guidance which is intended to simplify various aspects to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 for recognizing deferred taxes for investments, performing an intraperiod allocation and calculating income taxes in interim periods. The amendment also clarifies and amends certain areas of existing guidance to reduce complexity and improve consistency in application of Topic 740. Generally, the topics must be applied prospectively upon adoption, with the exception of certain topics which are required to be applied on a retrospective or modified retrospective basis. The new standard is effective for the Company’s first quarter of fiscal year 2022. The Company will continue to evaluate the new guidance and expects that the simplification will not have a material impact on its overall financial statements.