2. RECENT ACCOUNTING PRONOUNCEMENTS

Standards Implemented

In June 2009, the FASB issued guidance which modifies the approach for determining the primary beneficiary of a variable interest entity ("VIE"). Under the modified approach, an enterprise is required to make a qualitative assessment whether it has (i) the power to direct the activities of the VIE that most significantly impact the entity's economic performance, and (ii) the obligation to absorb losses of the VIE, or the right to receive benefits from the VIE, that could potentially be significant to the VIE. If an enterprise has both of these characteristics, the enterprise is considered the primary beneficiary and must consolidate the VIE. The modified approach for determining the primary beneficiary of a VIE was effective for the Company commencing February 1, 2010, and the application of this guidance did not have a material impact on the consolidated financial statements.

In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in an active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a gross presentation of activity within the Level 3 (significant unobservable inputs) roll forward, presenting information on purchases, sales, issuance, and settlements separately. The guidance is effective for the Company for interim and annual periods that commenced February 1, 2010, except for the gross presentation of the Level 3 roll forward, which became effective for the Company for interim and annual periods that commenced February 1, 2011. Adoption of this guidance resulted in additional disclosures and is anticipated to result in additional disclosures for the gross presentation of the Level 3 roll forward once effective.

Standards to be Implemented

In September 2009, the FASB issued revenue recognition guidance applicable to multiple-deliverable arrangements, which:

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applies to multiple-deliverable revenue arrangements that contain both software and hardware elements, focusing on determining which revenue arrangements are within the scope of the software revenue guidance; and

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addresses how to separate consideration in multiple-deliverable arrangements, excluding software arrangements and establishes a hierarchy for determining the selling price of a deliverable. It also eliminates the residual method of allocation by requiring that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and also significantly expands disclosure requirements.

The Company has elected to not early adopt this guidance. As a result, it is effective on a prospective basis for revenue arrangements entered into, or materially modified, on or after February 1, 2011.

Subsequent to adoption, a portion of the Company's multiple-deliverable arrangements that contain hardware are no longer included within the scope of the software revenue guidance, which generally results in accelerated revenue recognition in comparison to historical treatment. This primarily relates to arrangements with multiple product deliverables, as well as arrangements recognized ratably over the PCS period due to the absence of VSOE of fair value.

The adoption of this guidance will not have a material impact on the consolidated financial statements for the fiscal quarter ended April 30, 2011, but the Company believes that it could materially increase revenue for the fiscal year ending January 31, 2012.

In December 2010, the FASB issued guidance on when to perform step two of the goodwill impairment test for reporting units with zero or negative carrying amounts. Upon adoption, if the carrying amount of the reporting unit is zero or negative, the reporting entity must perform step two of the goodwill impairment test if it is more likely than not that goodwill is impaired as of the date of adoption. In determining if it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist. Goodwill impairment recognized upon adoption of the guidance should be presented as a cumulative-effect adjustment to opening retained earnings as of the adoption date reflecting a change in accounting principle.

This guidance was effective for the Company for interim and annual periods that commenced on February 1, 2011. The Company is assessing the impact of the adoption of this guidance on its consolidated financial statements for the fiscal year ending January 31, 2012. Based on the carrying value of the Company's Comverse reporting unit being negative as of February 1, 2011 and qualitative factors, step two of the goodwill impairment test is being performed as of such date. The performance of this impairment test is ongoing, but the Company believes the adoption of this guidance will not lead to a material impairment of goodwill in its consolidated financial statements for the fiscal year ending January 31, 2012.

In December 2010, the FASB issued guidance to amend the disclosure requirements related to reporting pro forma revenue and earnings for business combinations. This amended guidance requires an acquiring entity to report pro forma revenue and earnings information of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. In addition, this amended guidance also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The Company has elected not to early adopt this guidance. As a result, it will be effective on a prospective basis for business combinations entered into after February 1, 2011. For business combinations that are material on an individual or aggregate basis entered into after February 1, 2011 adoption of this guidance is anticipated to result in additional disclosures.