Industry Supplement   |   November 2016
 

Revenue for the software and SaaS industry

KPMG’s insights on industry ASC 606 implementation. With the new revenue recognition standard effective date approaching, KPMG offers insight on the most significant industry issues.

Applicability

Application of the new revenue standard

  • Company that is in the software or software-as-a-service (SaaS) industry
  • Company that is currently assessing the impact of the new requirements of ASC Topic 606
  • Company that is at an advanced stage of its ASC Topic 606 implementation

Effective dates

Mandatory effective dates and early adoption provisions:

Annual periods:

For public business entities and certain not-for-profit entities the effective date for annual periods is the fiscal years beginning after Dec. 15, 2017.

For all other entites the effective date for annual periods is the fiscal years beginning after Dec. 15, 2018.

Interim periods:

For public business entities and certain not-for-profit entities the effective date for interim periods is the fiscal years beginning after Dec. 15, 2017.

For all other entites the effective date for interim periods is the fiscal years beginning after Dec. 15, 2019.

Early adoption:

For public business entities and certain not-for-profit entities the effective date for early adoption is the fiscal years beginning after Dec. 15, 2016.

For all other entites the effective date for early adoption is the fiscal years beginning after Dec. 15, 2016.

Key impacts

  • Whether the customer obtains a software license affects the guidance applied in accounting for the arrangement
  • Determination of the performance obligations in the contract may accelerate software license revenue recognition
  • Vendor-specific objective evidence (VSOE) is no longer the only basis for allocating contract revenue
  • A customer option may be an additional performance obligation. However, distinguishing a contractual option from a usage-based fee will require judgment
  • Software licenses are subject to the new licensing guidance. If a license is not distinct, companies consider the licensing guidance in applying the general revenue recognition model to the performance obligation that includes the license
  • The timing of revenue recognition for unspecified software updates or upgrades/enhancements and professional services will be similar to today
  • Sales- or usage-based fees promised in exchange for a software license will typically not be subject to the general guidance on variable consideration. However, exceptions may arise if the royalty is also promised in exchange for other goods or services
  • In most cases, whether multiple contracts are combined for software and SaaS companies will be similar to current US GAAP
  • There will no longer be a choice to expense commissions as incurred if certain criteria are met

Report contents

  • Specific issues for software and SaaS companies
  • Expanded disclosures
  • Effective dates and transition
  • Impact on the organization

Related content:

Detailed guidance: Revenue for software and SaaS

 

 

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