Summary of Significant Accounting Policies and Recent Accounting Pronouncements

3 Months Ended

Apr. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements

The Company’s significant accounting policies are discussed in Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020, filed with the SEC on March 31, 2020. There have been no significant changes to these policies during the three months ended April 30, 2020 except for updates resulting from the adoption of Topic 326, as discussed below.

Recent Accounting Pronouncements—Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance for income taxes and making other minor improvements. The amendments in the ASU are effective for the Company on February 1, 2021. The Company does not plan to early adopt this ASU at this time and the adoption of this standard is not expected to have a material impact on the consolidated financial statements.

Recent Accounting Pronouncements—Adopted

The Company became a large accelerated filer on January 31, 2020 and lost the ability to delay adoption of new or revised accounting pronouncements. Effective February 1, 2019, the Company adopted FASB ASU No. 2016-02, Leases (Topic 842), which supersedes the guidance in ASC 840, Leases, and requires recognition of right-of-use (ROU) assets and lease liabilities on the Company's consolidated balance sheets. Amounts presented in the unaudited condensed consolidated financial statements for fiscal year 2020 have been adjusted to reflect the adoption of Topic 842.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, and also issued subsequent amendments to the initial guidance including ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11 (collectively, Topic 326), which introduced a new impairment model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses (CECL). The new model uses a forward-looking expected loss method rather than the incurred loss model for recognizing credit losses. Additionally, any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. The Company adopted Topic 326 beginning February 1, 2020 and the adoption of the standard did not have a material impact on the its unaudited condensed consolidated financial statements. However, the adoption resulted in modifying the Company's policies for accounts receivable and available-for-sale securities as follows:

Accounts Receivable:

Trade accounts receivable are recorded at the invoiced amount. Prior to the Company’s adoption of Topic 326, the accounts receivable balance was reduced by an allowance for doubtful accounts that was determined based on the Company’s assessment of the collectability of customer accounts. Under Topic 326, the Company measures expected credit losses of accounts receivable on a collective (pool) basis, aggregating accounts receivable that have accounts balances above or below a certain threshold. For the receivable balances below the threshold, the Company applies a credit-loss percentage that is based on its historical credit losses. For the receivable balances above the threshold, the Company performs an analysis on the related customers and reserves the full amount for any customer accounts where collectability may be at risk. The COVID-19 pandemic and recent economic downturn also prompted the Company to include additional reserves for customers in industries that could be more heavily impacted by these events. The Company will reassess the impact of these events and any other events that may arise in the future in developing its estimates for expected credit losses, and will make any necessary adjustments to the related reserve balance.

The Company recorded an allowance for credit losses of $4.1 million as of April 30, 2020, and the allowance for doubtful accounts balance was $2.9 million as of January 31, 2020.

Available-for-Sale Securities:

Available-for-sale securities are reported at fair value, with unrealized gains and losses and the related tax impact included as a separate component of stockholders’ equity and in comprehensive loss. Accrued interest of $0.4 million as of April 30, 2020 is excluded from both the fair value and the amortized cost of the Company’s

available-for-sale securities and is recorded in prepaid expenses and other current assets in its condensed consolidated balance sheet. The Company has elected to not record an allowance for credit losses for accrued interest on available-for-sale securities and will reverse the accrued interest against interest income in the period in which it is determined that the accrued interest is uncollectible.

Prior to fiscal 2021, the Company followed the guidance in ASC 320 Investments-Debt and Equity Securities in determining whether unrealized losses were other than temporary. Under Topic 326, the Company now considers whether unrealized losses have resulted from a credit loss or other factors. The Company had no unrealized losses on its available-for-sale securities as of April 30, 2020 and as of January 31, 2020, and does not expect credit losses on its current investments in future periods. Therefore, the Company has concluded that an allowance for credit losses was unnecessary as of the February 1, 2020 adoption date and as of April 30, 2020. The Company had no realized losses on available-for-sale securities during the periods presented. The Company uses the specific identification method to determine the cost basis of investments sold.