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With the updated revenue recognitions standards, recognition for software and technology 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/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 changes 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

This course is part one in a two segment series that deals 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.

Learning Objectives

  • Explore changes to the revenue recognition process for software and technology and companies that deal in this industry.
  • Explore the basic principles of revenue recognition for software and technology and companies that deal in this industry.
  • Examine the five step process of revenue recognition using software and technology as an example.
  • Explore practices involving revenue recognition and accounting for costs of computer software. 
Last updated/reviewed: November 27, 2020

37 Reviews (163 ratings)Reviews

5
Anonymous Author
Good overall presentation of the revenue recognition challenges faced by software vendors. I'd recommend to anyone interested in the topic. I wish there would have been a slide or two on SaaS, maybe in part 2.
5
Anonymous Author
Very good overview of revenue recognition components as it relates to technology and software. Also, gives a good overview of the old revenue recognition standard and compare it to the new guidance.
5
Anonymous Author
Great concise course over revenue recognition for software and technology. Great information for IT Audit level staff on how the new acquisition of technologies affects the Financial Audit aspects.
5
Member's Profile
Useful course, however, too many repeats from the other general 606 sessions. I was hoping this course would be more specific and would use some examples. I bit too general for me.
5
Anonymous Author
This is a great course to learn about Topic 606 as it impacts Software and Technology companies. Need to take the entire Revenue Recognition courses prior to taking this course.
4
Anonymous Author
This is a very good course on the Revenue Recognition standard specific to Software. Full of key concepts and cosiderations, this is a good intro course or a refresher.
5
Anonymous Author
Thank you for going so in depth in the new software revenue recognition criteria. This is something I know nothing about and found it really interesting to learn about.
5
Member's Profile
This course thoroughly explained the new standards for Revenue Recognition for software. Learning about the Variable Consideration element was most valuable to me.
4
Member's Profile
Excellent overview, quite detailed. To enhance content it may be helpful to provide more examples of the process in real business activity.
5
Anonymous Author
The topics in this course were presented well. This was a good overview of how Topic 606 applies to computer software companies.
5
Anonymous Author
I enjoyed the content in this course. I thought the information was valuable for someone working in the software industry.
5
Anonymous Author
Excellent presentation of the changes in revenue recognition standards for software sales. Easy to follow and informative.
4
Anonymous Author
Having taken few accounting-based courses in my undergrad, this was a thorough and succinct course that taught me a lot.
5
Anonymous Author
This course was very helpful as I work in the software industry and wanted to brush up on the revenue guidance. Thanks!
5
Anonymous Author
Very thorough and applicable to SaaS companies and the unique challenges they face when it comes to revenue recognition
5
Member's Profile
This module is part of a series on ASC606 That all accounting professionals should complete. Excellent presentation.
4
Member's Profile
Just looking at slides is not as lively as when the instructor's face was displayed simultaneously with the slide.
5
Anonymous Author
Lynn Fountain's courses are always thorough and easy to follow. The courses are detailed with excellent examples.
4
Anonymous Author
There's a big difference between "Pervasive (on handout)" vs persuasive (ASC wording). Please adjust accordingly
5
Anonymous Author
Explained very well and easy to understand. It's a complicated subject, but Lynn makes it much easier to get.
4
Member's Profile
Great overview and of revenue recognition and the implications to software contracts/licenses. Thank you!
3
Anonymous Author
Some parts of the course were very theoretical. There was not enough time spent on concrete examples.
5
Member's Profile
Very good intro to an extensive and nuanced standard that takes a while to wrap your arms around.
4
Member's Profile
This topic is especially relevant for financial professionals in the Saas and software industries.
5
Member's Profile
Great overview of ASC 606 - I look forward to digging into the more detailed sub-topic learnings.
5
Member's Profile
Good content. Covered the main topics. Can be updated now the standard is already in place.
5
Anonymous Author
Great course and easy to follow. The slides were very thorough and a good resource.
5
Anonymous Author
excellent course. I am very satisfied with the info. Thanks Lynn. You're the best.
4
Anonymous Author
Good overview of rev rec; has pdf files for reference with material of the course
5
Anonymous Author
Nice course. Source materials are laid out well and meet the course objectives.
5
Member's Profile
Thank you so much for laying out complex topics as simply as possible!
5
Anonymous Author
Course is well developed and presented. Good review or intro course.
5
Anonymous Author
This course was very helpful. Well presented and easy to follow.
4
Anonymous Author
The discussion between VSOE and SSP was not detailed enough.
5
Member's Profile
Thank you very much for this guide into a new area for me.
5
Member's Profile
Nice comparison between 605 and 606 criteria and outcomes
4
Member's Profile
Very helpful in breaking down changes to new guidance.

Prerequisites

Course Complexity: Advanced

No advanced preparation or prerequisites are required for this course.

Education Provider Information

Company:
Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
Contact:
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
INTRODUCTION AND OVERVIEW
  6:14Introduction to Topic 606 - Topic 606: Revenue Recognition for Software and Technology
  17:18Overview of Changes
  10:05Five Step Process
  14:32Performance Obligations
  14:49Transaction Price
  12:36Basic Principles of RR
  2:24Summary
CONTINUOUS PLAY
  1:17:59Topic 606 - Topic 606: Revenue Recognition for Software and Technology Full Video
SUPPORTING MATERIAL
  PDFSlides: Topic 606: Part 1: Revenue Recognition for Software and Technology
  PDFTopic 606: Part 1: Revenue Recognition for Software and Technology Glossary/Index
REVIEW AND TEST
  quizREVIEW QUESTIONS
 examFINAL EXAM