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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 13, 2019

17 Reviews (75 ratings)Reviews

3
Anonymous Author
Good introduction to the topic; still uncertain of how to recognize revenue for services/component parts but believe she goes into an expanded description in part 2. Would significantly prefer having variable speed playback.
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
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
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
I enjoyed the content in this course. I thought the information was valuable for someone working in the software industry.
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
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.
4
Anonymous Author
There's a big difference between "Pervasive (on handout)" vs persuasive (ASC wording). Please adjust accordingly
5
Member's Profile
Very good intro to an extensive and nuanced standard that takes a while to wrap your arms around.
5
Anonymous Author
Great course and easy to follow. The slides were very thorough and a good resource.
5
Member's Profile
Thank you so much for laying out complex topics as simply as possible!
5
Anonymous Author
This course was very helpful. Well presented and easy to follow.
5
Member's Profile
Nice comparison between 605 and 606 criteria and outcomes

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