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Revenue Recognition Accounting for Sales of Enterprise Software

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The following was a question posed by a CFO during a recent Revenue Recognition webinar:
 
We sell enterprise software to cable companies. The contracts call for 1) an annual license fee, 2) annual software maintenance and 3) an ad serving fee of $x per thousand impressions. We are planning to recognize the license / maintenance fees ratably, but the insertion fees as used. Is this appropriate? Or, should we simply recognize the whole package ratably over the three year term?
 
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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