Webtrends corp securities registration statement s1a. If fair value has not been established on each element, then all revenue needs to be deferred until the contract is complete. We recognize revenues in accordance with the provisions of american institute of certified public accountants aicpa statement of position sop 972, software revenue recognition, as amended by sop 989, modification of sop 972. That may shift was the deliberation process continues. Use this predefined template as a general guide for recognition of software revenue in accordance with sop 97 2, sab 104, and eitf 0021. This guidance is codified in asc 985605, software revenue recognition.
One thing the firm specifically stated was that it was going to issue more interpretations on this process because many companies with products and services that include software must consider the procedures under the american institute of certified public accountants statement of position sop 972. Highlights of the 2004 aicpa national conference on. Revenue recognition for software companies softrax industry. Software revenue recognition under sop 972 by carmichael. Revenue recognition in october 1997, the american institute of certified public accountants aicpa issued statement of position sop no. Think of the operating system on a pc, everything could be recognized on shipment. On january 1, 1998, the company adopted the american institute of certified public accountants statement of position sop 972, software revenue recognition. The company modified certain aspects of its business model such that the impact of sop 972 was not significant. Revenue recognition on software arrangements appendix c of sop 972. The principal objectives of sop 972 were to reconsider certain provisions of the previous guidance on software revenue recognition that were being applied inconsistently and to address. Statement of position sop 972, software revenue recognition, to account for revenue from fixed price arrangements for software development and related services in conformity with sop 811.
Revenue recognition for software companies softrax. Issued by the accounting standards executive committee acsec, sop 97 2 provides guidance on applying revenue recognition principles to software transactions. By clicking on the accept button, you confirm that you have read and understand the fasb website terms and conditions. One example is where products that contain software. The principal reason for these revisions to revenues and operating results was to conform with the accounting principles articulated in statement of position 972. Deloitte united states has published the second edition of software revenue recognition a roadmap to applying aicpa statement of position 972 pdf 169 pages, 886k to address some of the most difficulttointerpret provisions of sop 972 as well as provide a new overview of the main topics in sop 972 under the following headings. Sab 104 summarizes the staffs views in applying generally.
Revenue for the two arrangement types should be recognized as follows. Software revenue recognition exposure revenue is a key factor in the valuation of a company. May 01, 2007 one thing the firm specifically stated was that it was going to issue more interpretations on this process because many companies with products and services that include software must consider the procedures under the american institute of certified public accountants statement of position sop 97 2, software revenue recognition. Financial reporting developments software revenue recognition 1 1 introduction and scope 1. Vmware recognizes revenue for software products and related services in accordance with the american institute of certified public accountants statement of position sop 972. Revenue recognition the companys revenue recognition policy is consistent with the requirements of statement of position sop 972, software revenue recognition and staff accounting bulletin 104 sab 104. Separate rules for software sop 972 and vsoe of fair value. Under sop 972, recognition of revenue generally occurs at delivery if a fourpart.
Our appliances include operating system software that is integrated into the appliance hardware and is deemed essential to its functionality. The primary authority for software revenue recognition is aicpa statement of position sop no. Vmware recognizes revenue for software products and related services in accordance with the american institute of certified public accountants statement of position sop 972, software revenue recognition, as amended. Applicability of aicpa statement of position 972 to certain. Separate rules for software sop 972 and vsoe of fair value 1. Revenue recognition we recognize revenue in accordance with sop 972, as amended by sop 989, and emerging issues task force, or eitf, issue no. Roadmap to understanding the new revenue recognition standards in may 2014, fasb issued accounting standards update asu 201409, revenue from contracts with customers topic 606, and the international accounting standards board iasb issued international financial reporting standards ifrs 15, revenue from. There is much nuance in software revenue accounting which will be addressed in future posts. The companys revenue recognition policies are in compliance with all applicable accounting regulations, including american institute of certified public accountants aicpa statement of position sop 972, software revenue recognition, and sop 989, modification of sop 972, with respect to certain transactions. Hedge funds and private equity are the best known of the alternative assets, but certainly not the only alternative assets available. Created to influence the development of accounting standards and guidance, it was the 103rd statement issued by the aicpa. Also, the new accounting guidance for revenue recognition and leases will create other classes of longterm assets which will result in additional accounting challenges. Infosys technologies limited and subsidiaries unaudited. We have designed and implemented revenue recognition policies in accordance with statement of position sop 972, software revenue recognition, as amended by sop 989, modification of sop 972, software revenue recognition, with respect to certain transactions, and sop 984, deferral of the effective date of a provision of sop 972.
It applies to both public companies according to sab 104 and private enterprises. Introduction the focus of part 2 of this article is on the practical steps that a lawyer should consider taking in preparing software agreements and the related policies and procedures to be considered by a software company in view of the new software revenue recognition guidelines, sop 97 2 the new sop. Revenues derived from our software license sales are recognized in accordance with statement of position sop no. Sop 972, as amended by sop 984 deferral of the effective date of a provision of sop 972. For software transactions entered into beginning january 1, 1998, the company adopted the american institute of certified public accountants statement of position sop no. A roadmap to applying asc 985605 2 101 vsoe of fair value for a pcs renewal rate that changes on the basis of an inflation index 97 2 102 no vsoe of fair value for the specified upgrade 98 2 103 shortterm license with mandatory pcs 98 2 104 minimal and infrequent upgradesenhancements 99. Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practical date. The same is true for other substantial mixes that include intangible asset software and. The company recognizes revenue in accordance with statement of position sop 972, software revenue recognition, as amended by sop 989, and related interpretations. Roadmap to understanding the new revenue recognition standards in may 2014, fasb issued accounting standards update asu 201409, revenue from contracts with. What follows is a summary of the current accounting guidance. But a software application sold along with the hardware would still be under sop.
Revenue knowledge of and experience working in a revenue related function, and experience with revenue recognition in a softwaretechnology environment asc 985605 revenue recognition. Revenue recognition rules for bundled sales in high technology. Sop 97 2, as amended by sop 984 deferral of the effective date of a provision of sop 97 2, was adopted by the company as of january 1, 1998. Jun 01, 2000 in october 1997, the aicpa issued statement of position sop 97 2, entitled software revenue recognition. The guidance of sop 97 2 is effective for software arrangements entered into in fiscal years beginning after december 15, 1997. New standards update sop 972 software revenue recognition. The companys products are licensed on a peruser model, except for hosting services. The guidelines, entitled statement of position 97 2, software revenue recognition, described in this article as the new sop supersedes statement of position 911 sop 911 on the same subject. Case 1 conservative recognition or cookie jar reserves. Executive summary statement of position sop 97 2 provides guidance on applying gaap in recognizing revenue from software and software related transactions. The statement was released due to changing business models within the software industry and was known as sop 972 software revenue recognition. As a result, we account for revenue in accordance with asc 985605 formerly referred to as statement of position 972 sop 972.
Overview of asc 606, which provides a highlevel summary of the guidance in topic 606. The statement recommends using a liability account to track the unearned revenue on service contracts. Financial reporting developments software e revenue recognition iii 1 introduction and scope 1. Under the statement, companies had to determine whether software was merely incidental to the hardware. The company modified certain aspects of its business model such that the impact of sop 972.
November 2016 updated june 2019 we have prepared a white paper, revenue recognition. Sheri found it almost ironic that steves idea to sell technology also had potential revenue recognition problems. We are revising our 1999, 1998 and 1997 financial statements. Activities or transactions within the scope of sop 972, software revenue recognition section 10,700 f. Products within the scope of emerging issues task force eitf issue no. For those in the technology sector that utilize statement of position 972, software revenue recognition sop 972, adopting topic 606 will most likely result in significant changes to when you recognize. The companys revenue recognition policies are in compliance with all applicable accounting regulations, including american institute of certified public accountants aicpa statement of position sop 972, software revenue recognition, and sop 989, modification of sop 972. The new sop provides for prospective application of its guidelines for transactions entered into in fiscal years beginning after december 15, 1997. Software revenue recognition, statement of position 972 am. While primarily developed for the software industry, the sop increasingly applies to other industries in which software has become more than incidental to products and services. Condensed consolidated balance sheets unaudited continued. Revenue recognition software sop 972 wittsiepe consulting. Subsequently, in march 1998, the financial accounting standards board fasb approved sop 984, deferral of the effective date of a provision of 972.
The aicpa has issued a statement of position sop 972. As required by american institute of certified public accountants statement of position 972 software revenue recognition, we recognize revenue from printing systems when persuasive evidence of an. The changing requirements of sop 972 software revenue recognition. Until then we have asc 985605 to guide us through software revenue recognition. We currently recognize revenue pursuant to statement of position sop 972, as modified by sop 989 and staff accounting bulletin sab 104. Generally, we recognize software license revenue upon delivery of the software. Before sop 972 was issued, us gaap rules on software. Revenue recognition rules leveling the playing field 1. Software vendor has seen that it has two classes of customers.
In october 1997, the american institute of certified public accountants aicpa issued statement of position sop no. Telecharger the handbook of alternative assets blanca wade. Sop 911 stated that the accounting treatment of undelivered elements in a contract depended on. Revenue recognition revenue recognized on the basis of increases in an entitys net position in a contract with a customer occurs when an entity performs by satisfying an obligation in the contract.
Sop 97 2 software revenue recognition also addressed the idea of recognizing revenue when software and hardware components operated in conjunction with each other. Lopez provided examples in the context of the software industry and, in particular, the application of sop 972 to products that contain software. In the united states of america complex revenue recognition rules are applied sop 97 2. The latest chapter in that history is statement of position sop 97 2, software revenue recognition, issued by the aicpas accounting standards executive committee acsec in october 1997. As a result of this fact companies are often pressed to recognize revenue as early as possible. For most software accounting departments, it became the bane of their existence.
In general, the company records revenue when it is realized, or realizable and earned. Subsequently, in march 1998, the financial accounting standards board fasb approved sop 984, deferral of the effective date of a provision of 97 2, software revenue recognition. As technology becomes further entrenched in consumer and enterprise products, companies outside of the traditional software. Revenue recognition practices for software are in accordance with statement of position 972, software revenue recognition. Revenue recognition for selling hardware plus software. A cluster analysis performed on the data reveals 2 distinct classes of.
Application of sop 972, software revenue recognition, to transactions involving softwareenabled devices is leading more and more to financial statement presentation that does not always provide a reasonable representation of a companys performance. One of the difficulties lies in determining whether or not 97 2 applies. Software revenue recognition on the rise journal of accountancy. Read this essay on case 1 conservative recognition or cookie jar reserves.
Software the primary authority for software revenue recognition is aicpa statement of position sop no. The author explores each one of these alternative asset classes in detail, providing practicaal advice along with useful research. The sop provides instruction on recognition for licensing, selling, leasing or otherwise marketing software. Makes things less strict, so that if the software is essential to the functioning of the hardware, its excluded from software revenue guidance. Vmware derives revenue from the licensing of software and related services. Examples of the application of certain provisions of this statement of position appendix a of sop 97 2 104 response to comments received appendix b of sop 97 2 109 revenue recognition on software arrangements appendix c of sop 97 2 110 glossary from sop 97 2 1. The aicpa has issued a statement of position sop 97 2 software revenue recognition. And of course, the introduction of brand new products and services. In accordance with paragraph 8 of sop 972, license revenues under the peruser model are recognized under the companys revenue recognition polices when revenue recognition criteria are met. The fasbs new guidance on reference rate reform is designed to promote a smooth transition away from libor to new reference rates and significantly reduce accounting cost. Revenue recognition the companys revenue recognition policy is consistent with the requirements of statement of position sop 972, software revenue recognition and staff accounting bulletin 104.
Statement of position sop 972 provides guidance on applying gaap in recognizing revenue from software and softwarerelated transactions. When statement of position 972, software revenue recognition, was. The company recognizes revenue in accordance with sop 972, software revenue recognition sop 972. New guidelines for software revenue recognition practical. Revenue recognition the companys revenue recognition policy is consistent with the requirements of statement of position sop 97 2, software revenue recognition and staff accounting bulletin 104 sab 104. This guidance is codified in asc 985605, software e revenue recognition. Revenue recognition during the first quarter of fiscal 1999, the company adopted statement of position sop 972, software revenue recognition. In this quick session we cant possibly address all of the literature, but i am going to begin with a brief discussion of the applicability of sop 97 2. Revenue from fixedprice, fixedtimeframe contracts is recognized as per the percentageofcompletion method. For those in the technology sector that utilize statement of position 97 2, software revenue recognition sop 97 2, adopting topic 606 will most likely result in significant changes to when you recognize revenue, particularly with regard to contracts with multiple performance obligations. Citeseerx aicpa statement of position 972, software.
Sop 972 to provide vendor specific objec tive evidence vsoe to support recognition of revenue from certain types of software and maintenance and support. In this paper, the pricewaterhousecoopers pwc global software practice examined certain situations in which adopting ifrs may require a reconsideration of revenue recognition policies and practices that were driven by us gaap compliance. Maintain and profitably grow its strong position in the autodesk software economy. Revenue recognition ncrs revenue recognition policy is consistent with the requirements of statement of position 972 sop 972, software revenue recognition, staff accounting bulletin no. Come browse our large digital warehouse of free sample essays. Accounting standards executive committee, software revenue recognition. Any estimates should be recorded using a retrospective approach and refigured at each balance sheet date. Guidance has been drawn from paragraph 95 of statement of position sop 972, software. Get the knowledge you need in order to pass your classes. American institute of certified public accountants. Software revenue recognition rules and postcontract support. This is because according to the gaap software revenue recognition rules, revenue can only be recognized upon delivery if fair value has been established for each element within a contract. Banking, finance and accounting business law computer software industry accounting and auditing industry sales and revenue marketing software industry.