Handbook | April 2023
Using detailed Q&As and examples, our in-depth guide explains how the revenue standard (ASC 606) applies to software licensing and SaaS arrangements. This latest edition is updated for continuing developments in practice.
Applicability
ASC 606 and ASC 340-40
- All software and software-as-a-service companies
Key impacts
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, evolving business practices continue to create new and unique challenges when identifying performance obligations and allocating the transaction price to those performance obligations. Contract modifications also continue to give rise to questions.
This Handbook provides detailed technical guidance on applying ASC 606 (and Subtopic 340-40) to software licensing and SaaS arrangements. We address a wide variety of software and SaaS-specific issues and questions that have arisen during and since the adoption of ASC 606. We compare the effects of ASC 606 to those under legacy US GAAP for many longstanding software and SaaS practice issues.
KPMG Handbook, Revenue recognition, is a complement to this industry-specific Handbook. It 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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