Revenue Recognition Software License Fees

Nonrefundable up front fees in software arrangements.

Revenue recognition software license fees. Bundling and discounting complicate revenue recognition. Under some software arrangements the customer must pay a nonrefundable up front fee. 6 27 2018 accounting standard update asu 2014 09 topic 606 revenue recognition contracts with customers fundamentally alters the way we think about financial reporting. The new revenue standards asc 606 and ifrs 15 revenue from contracts with customers replace industry specific guidance with a single revenue recognition model.

Regulations new revenue recognition rule is tricky for software and technology companies. The following are some common fee structures that we see our customers using and how they impact revenue recognition reporting under asc 606 ifrs 15. Revenue recognition within the software industry has historically been highly complex with much industry specific guidance. We will be charging 20 of saas fee to our channel partner.

We have a channel partner who sold software license to one of our customer. This approach and wondering if the p l should be restated to show the revenue spread across the length of the license rather than immediately. Say your company prices software at 800 per year and training at 200 per year. According to sab 104 and software license revenue recognition rules revenue for both perpetual and time based licenses can be recognized when the licenses are delivered as long as a firm has satisfied the following rules.

The timing of revenue recognition for unspecified software updates or upgrades enhancements and professional services will be similar to today sales or usage based fees promised in exchange for a software license will typically not be subject to the general guidance on variable consideration. Eg after sales support and product enhancement on the sale of software. Revenue recognition of saas licences. Subscription businesses are very familiar with this kind of revenue as it s usually the primary fee that consumers pay to use your service.

As such the accounting for. If you decide to bundle those two services together and sell the software at a discount for 500 while throwing training in for free does that mean the training has no value in terms of generating revenue. The new standard not only changes financial statement disclosures but also the way your company will account. For accounting purposes saas subscription revenues should be considered non refundable up front fees.

Revenue recognition is vital to correctly determine the financial health of your company and you still need to recognize your revenue only when you earn it. The asc 606 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.