Revenue Recognition: Non-Software Deliverables, Vendor-Hosted Software, and Fee Impact

Learning Objectives

• To explain how to account for non-software deliverables in an arrangement containing more-than-incidental software.
• To review the applicability of the guidance when licensed software is hosted by the vendor.
• To analyze how up-front fees impact revenue recognition. 
• To inspect how future discounts impact revenue recognition. 
• To discuss if software components are excluded from the scope of the new guidance.

Course Description

This online webinar by Lynn Fountain is part two in a two-segment series that will deal with Revenue Recognition for Software and Technology companies.  It is designed to provide insight related to the new revenue recognition standard as it applies to software and technology processes.

In May 2014, FASB and IASB issued largely converged revenue recognition standards.  This new guidance replaces virtually all current revenue recognition guidance, including software revenue recognition guidance in ASC 985-605. The accounting change will be especially notable for software/technology companies and may require modification to systems, processes, controls, and documentation to meet the new requirements.

With the updated revenue recognition standards, recognition for software and technology is expected to continue to present challenges for financial statement preparers. Ways of doing business continue to evolve as do the views of the standard setters and regulators.  It is imperative that any company required to apply the software revenue recognition standards be thoroughly knowledgeable of the guidance.

Most companies in the software industry will be significantly affected. The level of modification to current revenue recognition practices will depend on the nature of the company’s revenues. Those companies with software license revenue will be the most affected.  There will be a lesser impact on the recognition of software-as-a-service (SaaS) revenue.

Software companies’ arrangements with customers often include multiple components wrapped into one contract. These could include:

• Software licenses
• Software-as-Services (SaaS)
• Post-contract customer support (PCS) 
• Other goods or services. 

The new guidance will change how software entities are recognizing revenue for these contracts in a few notable ways.

ASC 606 provides a more defined structure for assessing all revenue transactions and consists of five elements:

• Identify the contract with a customer
• Identify the performance obligations (promises) in the contract
• Determine the transaction price
• Allocate the transaction price to the performance obligations
• Recognize the revenue when (or as) the reporting organization satisfies the performance obligations

Join this CPE Accounting course to get insight related to the new revenue recognition standard as it applies to software and technology processes.

Overview

• Non - Software deliverables in an arrangement containing more than incidental software

  8 mins
• Factor two - PCS

  15 mins
• Vendor hosted licensed software

  26 mins
• UP front fee

  33 mins
• Software excluded from scope of ASC 985-605

  41 mins