In connection with the Financial Accounting Standards Board Accounting Standards Update 2014-09, Revenue from Contracts with Customers, 13 issues were identified as companies within the software industry began to initiate implementation plans. The issues are as follows:
- Determining whether a license in a hosting, SaaS, and hybrid-cloud arrangements is distinct from other goods and services in the arrangement
- Identification and satisfaction of whether components of post-contractual support as well as a license are a separate performance obligations
- Accounting for a customer’s option to purchase or use additional copies of software
- Defining and identifying potential price concessions
- Estimating the stand-alone selling price of options that are determined to be performance obligations
- Accounting for month-to-month software licenses with a renewal option
- Determining the transaction price and whether it is appropriate to use the residual approach in estimating the standalone selling price of a software license
- Determining the transaction price and assessing the significance of financing components
- Transfer of control of a software license
- Disclosing levels of disaggregated revenue
- Estimating standalone selling price, including the use of a range to evidence standalone selling price
- Distinguishing a contract among master service arrangements and purchase orders
- Determining whether other goods and services, including, but not limited to, installation services, are separate performance obligations
The AICPA has formed an industry task force to address the above implementation issues. The issues have been submitted to the AICPA’s Revenue Recognition Working Group (RRWG), and substantially all of the issues have been submitted to the Financial Reporting Executive Committee (FinREC) for consideration. RRWG and FinREC are working to finalize the outstanding issues by providing implementation guidance, which would be included in the AICPA Revenue Recognition Guide; however, none of the issues have currently been resolved.
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