American Accounting Standards: Software Industry Revenue Recognition
1. Related accounting standards
1) Accounting Standard Codifications 985-605 Software Revenue Recognition
2) Accounting Standard Codifications 605-35 Construction-type and Production-type contract
2. Overview
The recognition of the software industry revenue in the US Accounting Standards (formerly SOP 97-2) includes the main elements of revenue recognition: sales of product revenue, provision of labor income, multiple accounting unit transactions, and construction contracts, as well as for specific cases. A detailed explanation. At the same time, SOP 97-2 has an important impact on the SEC's SAB T13, thus affecting the accounting behavior of listed companies in other industries.
Software transactions may be only a single software sales, may also provide software in addition to a large number of production, modification and customization. In the United States accounting standards (ASC 985-605, the original SOP 97-2), the different types of software transactions accounting treatment made their own specific provisions.
3. Requires a lot of production, modification and customization of software transactions
This applies to the corresponding criteria for the construction contract, ie the entire transaction applies to ASC605-35, construction contract and production contract.
1) ASC605-35 Requirements: When the completion of the contract, contract revenue and contract costs can be reliably estimated and meet the following conditions, should be used to complete the percentage method:
A. Contracts should clearly define the interests of buyers and sellers, exchange items and settlement methods and time.
B. It is expected that the buyer will fulfill all the corresponding obligations.
C. It is expected that the seller will fulfill all the corresponding obligations.
2) Otherwise, the contract completion method is applicable.
4. No need for extensive production, modification and customization of software transactions
1) Basic principles of recognition of accounting unit income (adopted by SAB T13, applicable to all listed companies):
Revenue can only be confirmed if all of the following conditions are met:
A. Transactions exist
The evidence for the existence of the transaction is based on the practice of the business in operation.
B. The product has been delivered
ASC 985-605-25 discussed in detail how the various product delivery methods meet the product delivery standards.
C. The price of the product is fixed or determinable, and the collection is likely to be achieved.
It is worth mentioning that the payment is deferred. Since the long-term value of software products may be reduced due to the future improvement of the product, the deferred payment may indicate that the product price is not fixed or uncertain. Furthermore, if the majority of the principal portion of a software transaction has a payment period that exceeds the expiry date of the software or more than 12 months after the delivery of the product, it may be presumed that the price of the product is not fixed or uncertain, unless there is conclusive evidence that this is not The
2) multiple accounting unit transactions
A. If the fair value of VSOE (seller-specific objective evidence) of all accounting units is present, the transaction income shall be distributed to each unit according to VSOE, and the revenue shall be recognized separately based on the basic principles of the recognition of the income of the accounting unit.
B. If the fair value of VSOE (seller-specific objective evidence) of all accounting units is present, all transaction revenues shall be deferred to the VSOE fair value of all accounting units or when all units are delivered (whichever comes) The The following exceptions:
A) If all VSOEs of non-transmitted units are present, the remaining method shall be used: the sum of the VSOEs of the unannealed units, and the sum of the total transaction revenue and the non-transmitting unit VSOE shall be recognized as the corresponding income of the transmitted unit (assuming other confirmation Condition has been met).
B) If there is only customer support after the contract is not sent, the overall transaction income should be confirmed step by step according to the way the customer supports the contract.
C) If there is only a service that does not belong to the construction contract, the overall transaction income shall be confirmed according to the service provision (see C for details).
D) If the transaction is essentially a subscription (such as the future does not specify the software product sent), the overall transaction revenue should be confirmed in phases.
C. The transaction includes services that are not attributable to the construction contract:
A) A transaction element can only be used as a separate accounting unit if all of the following conditions are met:
I) The basic conditions for the distribution of income: the existence of the fair value of the VSOE of each accounting unit.
II) services have no critical impact on the implementation of the functions of other accounting units in the transaction.
So the need for a large number of production, modification and customization of software transactions in the service elements can not meet this condition.
III) Service elements are presented separately in the contract and have any of the following characteristics:
I. Other suppliers can also provide the service.
Ii. There is no significant risk or special acceptance of the service.
Iii. The seller is an experienced service provider.
Iv. The seller is provided with installation enablement services such as installation and activation plans, software ingress, customer training, data conversion, simple interface creation, test data, and assistance in the creation and documentation of procedures.
V. Customer has designated personnel to participate in the implementation of the service.
B) If the VSOE fair value is not present for all units and the non-sending unit is left with services that are not attributable to the construction contract, the overall transaction income shall be confirmed on the basis of the service delivery. If the mode of service provision is uncertain, the overall transaction income should be confirmed in stages on a straight-line basis during service provision.
1. Related accounting standards
1) Accounting Standard Codifications 985-605 Software Revenue Recognition
2) Accounting Standard Codifications 605-35 Construction-type and Production-type contract
2. Overview
The recognition of the software industry revenue in the US Accounting Standards (formerly SOP 97-2) includes the main elements of revenue recognition: sales of product revenue, provision of labor income, multiple accounting unit transactions, and construction contracts, as well as for specific cases. A detailed explanation. At the same time, SOP 97-2 has an important impact on the SEC's SAB T13, thus affecting the accounting behavior of listed companies in other industries.
Software transactions may be only a single software sales, may also provide software in addition to a large number of production, modification and customization. In the United States accounting standards (ASC 985-605, the original SOP 97-2), the different types of software transactions accounting treatment made their own specific provisions.
3. Requires a lot of production, modification and customization of software transactions
This applies to the corresponding criteria for the construction contract, ie the entire transaction applies to ASC605-35, construction contract and production contract.
1) ASC605-35 Requirements: When the completion of the contract, contract revenue and contract costs can be reliably estimated and meet the following conditions, should be used to complete the percentage method:
A. Contracts should clearly define the interests of buyers and sellers, exchange items and settlement methods and time.
B. It is expected that the buyer will fulfill all the corresponding obligations.
C. It is expected that the seller will fulfill all the corresponding obligations.
2) Otherwise, the contract completion method is applicable.
4. No need for extensive production, modification and customization of software transactions
1) Basic principles of recognition of accounting unit income (adopted by SAB T13, applicable to all listed companies):
Revenue can only be confirmed if all of the following conditions are met:
A. Transactions exist
The evidence for the existence of the transaction is based on the practice of the business in operation.
B. The product has been delivered
ASC 985-605-25 discussed in detail how the various product delivery methods meet the product delivery standards.
C. The price of the product is fixed or determinable, and the collection is likely to be achieved.
It is worth mentioning that the payment is deferred. Since the long-term value of software products may be reduced due to the future improvement of the product, the deferred payment may indicate that the product price is not fixed or uncertain. Furthermore, if the majority of the principal portion of a software transaction has a payment period that exceeds the expiry date of the software or more than 12 months after the delivery of the product, it may be presumed that the price of the product is not fixed or uncertain, unless there is conclusive evidence that this is not The
2) multiple accounting unit transactions
A. If the fair value of VSOE (seller-specific objective evidence) of all accounting units is present, the transaction income shall be distributed to each unit according to VSOE, and the revenue shall be recognized separately based on the basic principles of the recognition of the income of the accounting unit.
B. If the fair value of VSOE (seller-specific objective evidence) of all accounting units is present, all transaction revenues shall be deferred to the VSOE fair value of all accounting units or when all units are delivered (whichever comes) The The following exceptions:
A) If all VSOEs of non-transmitted units are present, the remaining method shall be used: the sum of the VSOEs of the unannealed units, and the sum of the total transaction revenue and the non-transmitting unit VSOE shall be recognized as the corresponding income of the transmitted unit (assuming other confirmation Condition has been met).
B) If there is only customer support after the contract is not sent, the overall transaction income should be confirmed step by step according to the way the customer supports the contract.
C) If there is only a service that does not belong to the construction contract, the overall transaction income shall be confirmed according to the service provision (see C for details).
D) If the transaction is essentially a subscription (such as the future does not specify the software product sent), the overall transaction revenue should be confirmed in phases.
C. The transaction includes services that are not attributable to the construction contract:
A) A transaction element can only be used as a separate accounting unit if all of the following conditions are met:
I) The basic conditions for the distribution of income: the existence of the fair value of the VSOE of each accounting unit.
II) services have no critical impact on the implementation of the functions of other accounting units in the transaction.
So the need for a large number of production, modification and customization of software transactions in the service elements can not meet this condition.
III) Service elements are presented separately in the contract and have any of the following characteristics:
I. Other suppliers can also provide the service.
Ii. There is no significant risk or special acceptance of the service.
Iii. The seller is an experienced service provider.
Iv. The seller is provided with installation enablement services such as installation and activation plans, software ingress, customer training, data conversion, simple interface creation, test data, and assistance in the creation and documentation of procedures.
V. Customer has designated personnel to participate in the implementation of the service.
B) If the VSOE fair value is not present for all units and the non-sending unit is left with services that are not attributable to the construction contract, the overall transaction income shall be confirmed on the basis of the service delivery. If the mode of service provision is uncertain, the overall transaction income should be confirmed in stages on a straight-line basis during service provision.
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