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Revenue Recognition Criteria For Professional Services (Webinar Attendee Question)

With revenue recognition in professional services, how do you handle customer change orders and fluid completion estimates?

Our company sells both software and professional services. We recognize revenue on a percentage completion basis as the services are performed. However, it's not that unusual for our service engagements to change. When that happens, how should we handle it? What if we add to the services order, would we have to de-book prior recognized revenue because  the delivery has changed? What other considerations?

This question was asked by an attendee during the Proformative webinar "Taming Revenue Recognition to Ensure Compliance" held on December 6, 2012.  Please join the discussion and add your insights below.

A video of the webinar can be viewed here: https://www.proformative.com/resources/webinar-video-taming-revenue-recognition-ensure-compliance-0

Answers

Anonymous
(Chief Accounting Officer) |

The answer to this could be tricky and long. There are quite a few variables to know before a truly accurate answer can be reached. Assuming for the sake of this forum that the services are not essential to the software and can be treated separately. With that, it should not mean that you reverse revenue unless you are planning on giving away free work. Ex. You worked 20 hours on a 100 hour engagement, so you recognized 20%. Engagement changes and you are now set to deliver another 100 hours. Assuming you are charging for the next 100 hours, you are now only 10% complete but the project size has doubled so there s/b no change in revenue recognized. If the services are essential to the software usability, that is a whole different can of worms.

Good luck.

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

You might also want to take a look at this free eBook from Proformative, titled

"Professional Services Are The New Growth Engine:"

https://www.proformative.com/whitepapers/complimentary-ebook-professional-services-are-new-growth-engine

That should help.

Best... Sarah

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