The devil is so often in the details, particularly when it comes to accounting. Merge Healthcare (NASDAQ:MRGE), a developer of software for the medical-imaging and information-management market, had been flying high on strong sales and earnings growth. Today, though, the stock has taken a pounding after the company delayed a full earnings release for the fourth quarter and announced that reported revenue will be well below expectations because of a revenue-recognition accounting issue.

Management is apparently still in the process of sorting this all out, so there wasn't a lot in the way of details. What we know is that company execs expect to report revenue of between $23 million and $26 million versus the current average expectation of about $35 million. We've also been told that total bookings in the quarter exceeded those in the third quarter and that revenue and earnings performance would have been in line with guidance if not for the accounting hang-up.

Investors are not reacting to this news very happily. It's true that the missing revenue isn't really "lost," but rather the recognition has been deferred over the next few quarters. It's also true that the company reported a pretty healthy number for operating cash flow -- a suggestion that it has the cash in hand from that missing revenue. Still, investors don't like these kinds of surprises, and it's fair to wonder why management didn't realize sooner that this was going to be an issue.

The market for medical software is still a good place to be. A wide range of players, including Cerner (NASDAQ:CERN), Quality Systems (NASDAQ:QSII), and Eclipsys (NASDAQ:ECLP), are all seeing good growth by focusing on their respective markets. And the ongoing importance of better record handling and cost control should keep the market strong for some time to come.

Until fairly recently, I was an owner of this stock. What ultimately prompted me to sell was a combination of factors that included a high level of customer concentration and a pretty generous valuation. But even today's decline and some fairly hefty future growth assumptions don't trigger my interest in repurchasing these shares just yet. I still believe that the company has the fundamental merits to justify a second go-around, but I'll be waiting in the hopes of seeing a better risk-value tradeoff.

For more hard logic on software:

Quality Systems is a three-time Motley Fool Stock Advisor recommendation. For more of Tom and David Gardner's picks, try Stock Advisor out free for 30 days.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).