However, the transaction price must first be determined and this may be more complex than companies are used to. Once the transaction price has been determined, it must be allocated to the promises based on the relative standalone selling price of the separate goods or services. Software and technology companies should bear in mind that:. The final step to ASC is recognizing revenue as your company satisfies the performance obligations within the contract. Much of this relates to when and how control is transferred to customers, specifically if it is transferred over time or at a point in time.
To comply with ASC , software and technology companies will need to:. Key themes of SEC comment letters related to revenue recognition include the following:. The SEC also continues to focus on non-GAAP metrics, including adjustments that change the accounting policy or the method of recognition of an accounting measure that may be misleading and, therefore, impermissible.
After the FASB issues a major new accounting standard, it begins a post-implementation review PIR process to evaluate whether the standard is achieving its objective by providing users of financial statements with relevant information that justifies the costs of providing it. In a handout prepared for the meeting, the FASB staff noted that stakeholder feedback on the revenue standard was positive overall, particularly from users of financial statements since the standard results in more useful and transparent information, improved disclosures, and comparability across entities and industries.
The staff further observed that while many preparers noted significant one-time costs associated with implementation of the standard, they also highlighted that the standard has been beneficial in the long run. As the PIR process for the revenue standard continues, the Board and its staff may identify areas of improvement that could result in future standard setting. Subscribe to receive Roadmap series publications via e-mail.
Archives are available on the Deloitte Accounting Research Tool website The Roadmap series contains comprehensive, easy-to-understand accounting guides on selected topics of broad interest to the financial reporting community. She provides consultations to clients and audit practitioners on complex financia In this role, Chris consults with engagement teams and clients on complex accounting matters and wo Do not delete!
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Please enable JavaScript to view the site. We address a wide variety of software and SaaS specific questions that have arisen during and after the ASC implementation period. Handbooks December Download now. Nick Burgmeier Partner, Dept. Scott Muir Partner, Dept. There are some common themes and questions for organizations in the software and software-as-a-service SaaS sectors to explore in our Technology Alert series. For all other entities, it was effective for annual reporting periods beginning after December 15, or after December 15, if financial statements had not been issued as of June 3, The impact of adopting the ASC revenue recognition standard on software and SaaS entities may have been greater than that on many other industry groups.
For example, the standard results in the elimination of the requirement for vendor-specific objective evidence of fair value. It also introduces potential difficulties in many areas, including:. These and other themes related to applying the revenue recognition standard for SaaS and software companies are explored in these publications.
For example, if a customer can terminate at any point and receive a pro rata refund, the arrangement should be accounted for as a daily contract. Termination rights Download the PDF Nonrefundable up-front fees in software arrangements Under some software arrangements, the customer must pay a nonrefundable up-front fee. The ASC revenue recognition standard requires entities to consider whether the fee is associated with the transfer of promised goods or services or an advance payment for future goods or services.
Questions have emerged regarding how to account for nonrefundable up-front fees associated with a software arrangement that contains a termination provision.
Nonrefundable up-front fees in software arrangements Download the PDF EITF project on revenue recognition for contract modifications of licenses of intellectual property The ASC revenue recognition standard generally requires an entity to recognize revenue for license renewals no earlier than the beginning of the renewal period. Further, a modification of a term license of software may include the ability to revoke the licensing right and convert to a hosted solution. Views differ on whether to apply the guidance on license renewals and how to account for the revocation of the licensing rights and the conversion to the hosted solution.
The scope of the project includes:.
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