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Perpetual License Transaction Accounting Under EITF 08-1

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The following was a question posed by a CFO during a recent Revenue Recognition webinar:
 
We have some transactions that are sold on a perpetual basis and some that are sold on a subscription (term) basis. For our perpetual transactions we do not have VSOE on undelivered items so we adopt subscription accounting and amortize all revenue (software & professional services, including PCS) over the PCS term. Under the new rules would we be required to book software revenue up front based on ESP?
 
The webinar speakers will offer their thoughts, but please feel free to comment and share your perspective as well.

Answers

David Elsbree
Title: Partner
Company: KPMG
(Partner, KPMG) |

An arrangement that was within the scope ASC Subtopic 985-605 (SOP 97-2) prior to the adoption of ASUs 2009-13 and 2009-14 (EITFs 08-1 and 09-3) and contains no hardware will continue to be in the scope of ASC Subtopic 985-605 after adoption of ASUs 2009-13 and 2009-14. Therefore, adoption of those ASUs would have no effect on the accounting for such an arrangement.

Please consult with your auditors regarding the accounting for specific fact patterns. Under PCAOB Standards, I am prohibited from giving accounting advice about specific transactions without consulting with the company’s auditors.

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