Company: SNPS
Filing Date: 2025-12-22
Form Type: 10-K
Source: 0000883241-25-000028
Chunk: 112

Company: SYNOPSYS INC
Filing Date: 2025-12-22
Form: 10-K
Item: Item 8
Chunk 112
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 a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the Company's analysis of terms and conditions in software and intellectual property license contracts with customers

As discussed in Notes 2 and 5 to the consolidated financial statements, the Company generates revenue from the sale of products that include software and intellectual property (IP) licenses, hardware products, maintenance and services. The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Arrangements with customers can involve hundreds of products and various license rights, and customers negotiate with the Company over many aspects of these arrangements. The Company’s customers often request a broader portfolio of solutions, support and services and seek more favorable terms such as expanded license usage, future purchase rights and other unique rights at an overall lower total cost. The Company recognized total revenue of $7,054.2 million for the fiscal year ended October 31, 2025, which included revenue related to software and IP licenses.

We identified the evaluation of the Company’s analysis of terms and conditions in software and IP license contracts with customers and their effect on revenue recognition as a critical audit matter. Complex auditor judgment was required to assess the Company’s judgments made in applying revenue recognition requirements to certain terms and conditions. 

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s revenue recognition process, including the Company’s analysis of terms and conditions in software and IP license contracts with customers and their effect on revenue recognition. We tested certain significant software and IP license customer contracts by inspecting the