Handbooks | December 2021
Using detailed Q&As and examples, KPMG explains how the revenue standard (ASC 606) applies to software licensing and SaaS arrangements. Our latest guide is updated for continuing developments in practice.
Applicability
ASC 606 and ASC 340-40
- All software and software-as-a-service companies
Relevant dates
Effective date |
Public business and certain other entities* | Other entities that had not issued or made available for issuance financial statements as of June 3, 2020** |
|---|---|---|
Annual periods – Fiscal years beginning after |
Effective |
Dec. 15, 2019 |
Interim periods – In fiscal years beginning after |
Effective |
|
Early adoption allowed in fiscal years beginning after |
Dec. 15, 2016 |
|
* (1) public business entities; (2) not-for-profits that have issued, or are conduit bond obligors for, securities that are traded, listed or quoted on an exchange or an over-the-counter market; and (3) employee benefit plans that file financial statements with the SEC. |
||
** ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, deferred the effective date for those specific other entities by one year. |
||
Key impacts
ASC 606 was issued in 2014 and is now effective for all entities. Even though the implementation of ASC 606 is complete, revenue recognition continues to be top of mind for software and software-as-a-service (SaaS) entities because of the complex nature of their arrangements and evolving business models.
ASC 606 requires software and SaaS entities to make significant judgments and estimates to account for their revenue contracts. In particular, the evolving business practices continue to create new and unique challenges about determining performance obligations and allocating the transaction price to those performance obligations.
This updated Handbook provides detailed technical guidance on key issues when applying ASC 606 to software licensing and SaaS arrangements. We address a wide variety of software and SaaS specific questions that have arisen during and after the ASC 606 implementation period. We also address the effects of ASC 606 on many longstanding software and SaaS practice issues, and in both cases, we compare the effects of ASC 606 to legacy US GAAP.
In addition, the KPMG Handbook, Revenue recognition, illustrates how ASC 606 applies to common transactions, provides examples about common scenarios, explains our emerging thinking on key interpretative issues and compares the new requirements to legacy US GAAP.
Report contents
- Software and SaaS industry overview
- Scope
- Step 1: Identify the contract with the customer
- Step 2: Identify the performance obligations in the contract
- Step 3: Determine the transaction price
- Step 4: Allocate the transaction price to the performance obligations in the contract
- Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
- Contract modifications
- Contract costs
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