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This course 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.

With the updated revenue recognition standard, recognition of revenue for software and technology companies is expected to continue to present challenges for financial statement (FS) 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.

In May 2014, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) issued largely converged revenue recognition standards.  This new guidance replaces virtually all current revenue recognition guidance, including software revenue recognition guidance in Accounting Standards Codification (ASC) Subtopic 985-605, Software—Revenue Recognition. The accounting change will be especially notable for software and technology companies and may require modification to systems, processes, controls and documentation to meet the new requirements.

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 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.

Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers, 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

Resources Consulted:
• ASC 606-10-32-15 to 32-20, 55-244 to 55-246.
• ASU 2014-09: “Revenue from Contracts with Customers.” BC229-BC247.
• Croner-I, “A14 Revenue from Contracts with Customers.” (2019). Section 7.4.2-2 and 7.4.2-2.
• FASB, ”Revenue Recognition Implementation Q&As.” January 2020). Questions 31-37.
• FASB TRG Memo 20: “Significant Financing Components.” 26 January 2015.
• FASB TRG Memo 30: “Significant Financing Components.” 30 March 2015.
• EY, Financial Reporting Developments: “Revenue from contracts with customers.”January 2020. Section 5.5.
• KPMG, Handbook: “Revenue Recognition.”December 2019. Section 5.5.
• PWC, “Revenue from contracts with customers”March 2020. Section 4.4.

Learning Objectives

  • Discover how to account for non-software deliverables in an arrangement containing more-than-incidental software.
  • Recognize the applicability of the revenue recognition (RR) guidance when licensed software is hosted by the vendor.
  • Discover how up-front fees impact RR. 
  • Discover how future discounts impact RR. 
  • Recognize which software components are excluded from the scope of the new RR guidance.
Last updated/reviewed: May 22, 2022

12 Reviews (65 ratings)Reviews

Member's Profile
A little hard to follow and remain engaged. Topic is complex, so maybe more examples would have helped. Moved fast so I paused often to think about the current slide.
Anonymous Author
Thus course is a very good refresher on key considerations and concepts in this section of the revenue guidance. Fast paced and clearly presented!
Anonymous Author
The information contained in this course is very relevant to my current role. The course was well presented and easy to follow. Thank you.
Anonymous Author
This is another great course to learn about the impact of new revenue recognition rules to Software and Technology companies.
Member's Profile
A very good review course for anyone involved in the software industry. Quite informative and explains difficult concepts.
Member's Profile
This module was more difficult than the others, and required more careful review and attention to detail.
Anonymous Author
The course was very relevant and helpful in understanding 606 related to software.
Anonymous Author
I appreciated the materials and instructor had a good knowledge of the subject.
Member's Profile
Really helped me understand when to apply ASC 985 in addition to 606.
Anonymous Author
This course provided a good overview of revenue recognition.
Anonymous Author
I would like to see more real life examples in this course.
Member's Profile
Wish to have more examples to explain the concepts


Course Complexity: Advanced

No Advanced Preparation or Prerequisites are needed for this course. However, it is recommended to take the other course in the series prior to completing this one.

Education Provider Information

Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
For more information regarding this course, including complaint and cancellation policies, please contact our offices at (408) 400- 3993 or send an e-mail to .
Course Syllabus
  6:50Introduction to Topic 606: Part 2: Revenue Recognition For Computer Software and Technology Companies
  2:16Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software
  4:40Factor One-More Than Incidental
  11:16Factor Two - PCS
  7:04Vendor Hosted Licensed Software
  2:26Up Front Fee
  4:52Future Discounts
  8:01Software Excluded From Scope of ASC 985-605
  51:47Topic 606: Part 2: Revenue Recognition For Computer Software and Technology Companies
  PDFSlides: Topic 606: Part 2: Revenue Recognition For Computer Software and Technology Companies
  PDFTopic 606: Part 2: Revenue Recognition For Computer Software and Technology Companies Glossary/Index