Therefore, all revenue under those arrangements was recognized ratably over the related service period. Multipleelement arrangements additional software deliverables and rights to exchange or. At present, there are special accounting rules for companies that sell bundled software andor software related deliverables. If an undelivered element relates to a deliverable within the scope of. Asc 60525 provides guidance on the separability of deliverables included in an arrangement into different units of accounting and the allocation of an arrangement s consideration to those units of accounting. As a result, software products that are essential to the function of any nonsoftware products will also be included under the scope of sop 972. Vsoe is critical because if a company cannot assert that it possesses vsoe for each element in a multipleelement arrangement particularly those products or services still to be delivered, the likely result is deferral of some, if not all, of the arrangements associated revenue. The new revenue standards asc 606 and ifrs 15, revenue from contracts with customers replace industryspecific. Revenue recognition topic 605 an amendment of the fasb accounting standards codificationtm no.
Under the new sop if an arrangement to deliver software does not require significant production, modification, or customization of the software, then the new sop specifies four criteria which must be met prior to recognizing revenue from a single element arrangement or for individual elements in a multiple element arrangement. Come see how revpro can eliminate manual inefficiencies with revenue treatment for ssp analysis and multiple element arrangements. Separately priced services in a software arrangement 91 691. As a computer software company, jda s ability to recognize revenue from the sale of software and related services in a multiple element arrangement was governed broadly by asc 985 605. In order t o recognize the full amount of revenue from the sale of a software license. Cloud computing arrangements often contain multiple deliverables, such as activation or setup fees, a software license, a hosting service, future upgrades, technical support, and customization costs. The attached publication, multipleelement arrangements a roadmap to applying the revenue recognition guidance in asu 2009, which is the latest addition to deloittes roadmap series, summarizes the changes made by asu 2009 and provides interpretive guidance on applying its provisions. Jan 17, 2016 this video shows how to recognize revenue for bundled services in a multi element arrangement. These rules prescribe when elements within a multiple element, or bundled, software arrangement can be accounted for as separate accounting units. Jun 05, 2007 if a multiple element software arrangement includes explicit or implicit rights to pcs, pcs is a separate element of the arrangement.
A typical example of multiple element arrangement is provision by a company of hardware and customised software, with installation, training and maintenance services, and the option to receive free updates, all negotiated together with a single customer. This video shows how to recognize revenue for bundled services in a multi element arrangement. Everything you need to know about vsoe but are afraid to ask paul lamparski finance director, global revenues. Measurement and allocation requirements the arrangement consideration must be. Multipleelement arrangements a roadmap to applying the. For software companies and companies that have not adopted eitf 081, the value is. Revenue recognition under multielement arrangements. Define elements defining each element of the software arrangement i. Fair value of services within an arrangement 91 661. Revenue recognition multipleelement arrangements deloitte us. Multi element arrangement occurs when a vendor agrees to provide more than one product or a combination of products and services to a customer in an arrangement. A comprehensive guide revenue recognition multiple element. The attached publication, multipleelement arrangementsa roadmap to applying the. Since it was issued and effective for new multiple element arrangements beginning in fiscal periods.
We can allocate the value to each element in several ways. A simplified common multiple element arrangement at my company is. We have prepared accounting for multipledeliverable revenue arrangements to be used as a firstline resource in addressing some of these practice issues. Under gaap, with respect to multiple element arrangements, if the revenue for a particular part of a multiple part arrangement does not qualify for separate recognition, it is. The second fundamental change in standards due to asu 2009 is the approach to the allocation of revenue to the various elements of a multiple element arrangement. Revenue recognition for saas and software companies. Multiple element arrangement how is multiple element. New gaap for multiple deliverables journal of accountancy. If a general return right exists for the delivered item, delivery or. We have prepared accounting for multiple deliverable revenue arrangements to be used as a firstline resource in addressing some of these practice issues.
New revenue guidance implementation in the software industry. Asc 60525 provides guidance on the separability of deliverables included in an arrangement into different units of accounting and the allocation of an arrangements consideration to those units of accounting. This multiple element approach involves the following primary steps. Fair value standalone selling price in multipleelement. In connection with accessing and using software products, an arrangement in which the customer of the software does not currently have possession of the software. Revenue recognition for software products with multiple. Revenues from contracts with multiple element arrangements, such as those including. Revenue is recognized when it is realized or realizable and earned. In most situations, the new guidance will result in earlier revenue recognition for financial reporting purposes. Multielement arrangements may include additional software products, rights to purchase additional software products at a significant. Revenue recognition software sop 972 wittsiepe consulting. Multiple deliverable products that include software incidental to the products or services as a whole will be guided by emerging issues task force eitf issue 0021.
Revenue recognition within the software industry has historically been highly complex with much industryspecific guidance. Sop 972 provides the necessary guidance when dealing with multipleelement arrangements. This type of transaction frequently occurs for technology firms that sell a variety of services e. In multiple element arrangements involving software and consulting, training, or other professional services that are not essential to the functionality of the software, the service revenues are accounted for separately from the software revenues. These practice issues, if not appropriately addressed, could have significant consequences on a vendors financial statements, including a misstatement of the vendors revenue for the period. Recognized when revenue for the other parts is recognized.
Asc 605 provides industryspecific guidance for entities in the software industry, entities that enter into constructiontype or productiontype contracts, and entities in the entertainment and financial services industries, among others. In order to adequately recognize revenue over the duration of a contract, it is important to identify each individual deliverable in a given contract. We hope that financial statement preparers will find this roadmap helpful. Jul 03, 20 revenue recognition under multielement arrangements by kevin lalor jul 3, 20 as we mentioned in yesterdays post, software companies tend to bundle together software licenses fees, installation and maintenance services, training, upgrade rights, and professional services into a multielement product offering.
New guidelines for software revenue recognition practical. Example of determining the applicability of sop 811 to a software arrangement 92 721. The delivered item has value to the customer on a standalone basis. The financial accounting standards boards emerging issues task force eitf recently updated guidance regarding recognition of revenue for multiple deliverable arrangements, which is intended to better reflect the underlying economics of such arrangements. The impact of the new revenue recognition guidance on. According to the sop, there are different accounting rules applicable when elements are considered a software element or a service element. Revenue on multiple element arrangements is recognized using the residual method of revenue recognition when companyspecific objective evidence of fair value exists for all of the undelivered elements for example, support services, consulting, or other services in the arrangement, but does not exist for one or more delivered elements. Revenue recognition under multi element arrangements by kevin lalor jul 3, 20 as we mentioned in yesterdays post, software companies tend to bundle together software licenses fees, installation and maintenance services, training, upgrade rights, and professional services into a multi element product offering.
Accounting for bundled services multielement arrangements. These elements to which revenue amounts are assigned by gaap are referred to as separate units of accounting. May 07, 2007 multi element arrangement occurs when a vendor agrees to provide more than one product or a combination of products and services to a customer in an arrangement. Multi element arrangements may include additional software products, rights to purchase additional software products at a significant incremental discount, specified upgrades or. Fasb asu 2009, multipledeliverable revenue arrangements, changes the accounting. We have evaluated the deliverables in our multiple element arrangements and concluded that they are separate units of accounting if the delivered item or items have value to the customer on a standalone basis and for an arrangement that includes a general right of return relative to the delivered items, delivery or performance of the. Since we frequently sell both training and consulting services separately, we have met the standalone value criteria. When accounting for multiple element arrangements, gaap indicates that sellers can separately record revenue for part of an arrangement even if the part does not have value to the customer on a standalone basis. New eitf revenue recognition standards for multiple.
When accounting for multiple element software arrangements, the revenue for each element is based on the separate prices stated for each element in. Revenue arrangements with multiple deliverables bpm accounting. The attached publication, multipleelement arrangementsa roadmap to applying the revenue recognition guidance in asu 2009, which is the latest addition to deloittes roadmap series, summarizes the changes made by asu 2009 and provides interpretive guidance on applying its provisions. Software revenue recognition on the rise journal of accountancy. Accounting for multipledeliverable revenue arrangements. Revenues from contracts with multiple element arrangements are recognized as each element is earned based on the relative fair value of each element provided the delivered elements have value to customers on a standalone basis. Multiple deliverable arrangements february 06, 2015 revenue recognition is an increasingly important topic for private companies operating in the technology and life sciences sector. However, it does not address when revenue should be recognized. Accounting for bundled services multielement arrangements for. Mea multiple element arrangement accounting acronymfinder. Multi element arrangement aka occurs when a vendor agrees to provide more than one product or a combination of products and services to a customer in an arrangement.
1086 239 1107 831 684 1520 1014 251 1373 1017 920 1395 722 618 490 612 602 505 1284 1003 903 610 952 906 756 501 1032 673 773 705 860 500 269 883 1446 373 491 425 743 101 520 474 458 527 1418 918