Why company directors need to focus on the small print of software licensing

Heads of businesses run the risk of breaching the Companies Act, incurring fines or a possible jail sentence if they fail to take proper account of software licensing terms.

A new report has highlighted the potential risks business leaders face from their trusted software suppliers.

As organisations become more digitally enabled, their operations and profitability rely increasingly on software. But as the leading software companies migrate to cloud computing with subscription-based licensing, their traditional on-premise licence customers are caught in a tricky situation. 

A consequence of signifcantly under-recording liabilities (and thereby overstating financial performance) is that the management team will not make informed decisions and may well face insolvency and liquidity problems,” the report said.

Given that stakeholders such as shareholders, bankers, employees and suppliers rely on the nancial information that businesses produce in their day-to-day dealings, if their software liabilities are not accounted for, the reporting errors will have a serious business impact. 

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