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Rev Rec for Arrangements that include only SW and PCS/Upgrades--SOP 97-2 be followed?

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The following was a question posed by a CFO during a recent Revenue Recognition webinar:

Undelivered PCS/ upgrades related to "essential" SW are scoped out of SOP 97-2 if HW is included in the arrangement? If an arrangement includes only SW and PCS/Upgrades, would the guidance of SOP 97-2 be followed?

The webinar speakers will offer their thoughts, but please feel free to comment and share your perspective as well.


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

To answer the second question first, software arrangements that do not contain hardware are within the scope of ASC Subtopic 985-605 (SOP 97-2), rather than ASC Subtopic 605-25 (EITF 08-1).

Regarding the first question, if an arrangement contains hardware and both “essential” and “non-essential” software and related PCS/upgrades, the hardware, the essential software, and PCS/upgrades related to the essential software are outside the scope of ASC Subtopic 985-605, and the non-essential software and PCS/upgrades related to the non-essential software are in the scope of ASC Subtopic 985-605.


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