The result of this process is a compilation of information which reports. The staff hereby revises topic of the staff accounting bulletin series as follows. Revenue recognition accounting for software as a service. Software topic 985 an amendment of the fasb accounting standards codificationtm no. As a result of this fact companies are often pressed to recognize revenue as early as possible. Example of determining the applicability of sop 811 to a software arrangement 92 721. Indepth accounting guidance for topics of significant interest. To be accounted for separately, delivered elements must.
One objective of financial reporting regulation is to encourage the production of decisionuseful information. Institute of certified public accountants aicpa statement of position sop no. Software topic 985 accounting standards codification. Aicpa statements of position sops, available fulltext at the links below from the university of mississippis library digital collections with the permission of the american institute of certified. Saas accounting software use sop 972 accounting vsoe for undelivered elements typically recognize license on delivery support recognized over period service use eitf 81 accounting generally ratable. Software revenue recognition aicpa sop 972 software revenue recognition accounting. Adjustments to sop 972 software revenue recognition. Software revenue recognition exposure revenue is a key factor in the valuation of a company. Before sop 972 was issued, us gaap rules on software. Specifically, aicpa created sop 972 to prevent software firms from prematurely recognizing revenues from multipleelement contracts carmichael 1998. In may 2014, the financial accounting standards board fasb released accounting standards update no. Gaap codification of accounting standards guide by.
Aicpa sop 972, software revenue recognition aicpa sop 981, accounting for the costs of computer software developed or obtained for internal use aicpa sop 002, accounting by. A publication of the american institute of certified. Accounting for a services element under sop 972 versus sop 81. The statement was released due to changing business models within the. The vsoe feature is intended for use by united states companies to maintain gaap compliance with the american institute of certified public accountants aicpa statement of position. In addition to the notion that sop 972 sets higher standards in multipleelement accounting, it also presents more situational examples than other, more general revenuerecognition literature. Accounting for a services element under sop 97 2 versus sop 811 95 effective date and transition 97. The task force discussed whether the tentative conclusion would provide opportunity for structuring a software transaction to avoid accounting for an arrangement under sop 97 2. Vsoe can be determined by demon strating that separate sales regularly occur ei. Financial reporting developments software revenue recognition 1 1 introduction and scope 1. Under sop 97 2, recognition of revenue for an arrangement including a single software occurs at delivery if the following four conditions are met. Revenue recognition accounting for software as a service saas.
Many people believe that the 972 model is more restrictive because of the need for. Kpmgs revenue recognition survey of technology companies. Reviews, revises, and maintains internal accounting controls and procedures 16. Software delivery should be straightforward and require no special production, modification, or authorization by the software seller vendor. The text of sab 104 will not appear in the code of federal regulations. Examples of software development arrangements 94 contract accounting 95 741.
When apple first introduced the iphone in 2007, the company announced it would use the subscription method of accounting under sop no. As such, accountants often turn to sop 972 for analogous guidance. Costs of software to be sold, leased, or marketed sfas 86, august 1985 accounting for the costs of computer software to be sold, leased, or otherwise. Sop 972 was one of the first comprehensive revenue recognition accounting guidelines defined for a specific industry, undoubtedly it will not be the last. An accounting standards update is not authoritative. The working group reached a consensus to adopt the eitf 0305 position as an interpretation of ssap no.
Formularbuch compliance medien mit zukunft revision, 31. Sop 972 has also been interpreted by the emerging issues task force eitf 003, application of aicpa statement of position 972 to arrangements that include the right to use software stored on another. The statement was released due to changing business models within the software industry and was known as sop 97 2 software revenue recognition. This guidance is codified in asc 985605, software revenue recognition. Created to influence the development of accounting standards and guidance, it was the 103rd statement issued by the aicpa. In this position, he is responsible for all accounting and auditing policies and overseeing all technical matters for clients. Accounting for the costs of computer software to be sold, leased, or otherwise marketed asc 985605. For those in the technology sector that follow statement of position 97 2, software revenue recognition sop 97 2 for revenue recognition, adopting topic 606 will most likely result in significant changes in how you recognize revenue. The fasb accounting standards codificationtm is the single source of authoritative nongovernmental u. The accounting requirements within the standard have been modified by asu 2009 and asu 200914. As such, accountants often turn to sop 97 2 for analogous guidance. Revenue recognition rules for bundled sales in high technology.
Use this predefined template as a general guide for recognition of software revenue in accordance with sop 972, sab 104, and eitf 0021. Authoritative literature aicpa statement of position 972, software revenue recognition aicpa statement of position 984. Processes invoices and prepares checks for signature 3. Download white paper to learn about vsoe accounting written by rev rex expert ashwinpaul tony c. Superseded ssaps and nullified interpretations int 04. Postcontract support, such as updates or upgrades, and ongoing services provided to customers are often separating factors in determining whether sop 97 2 is applicable, given that they introduce multipleelement accounting and thus may have a direct impact on a. Therefore, implementing sop 972 might improve software firms earnings 3 both sop 972 and sab 101 build upon the concepts of earnings process completion and revenue. Costs of software to be sold, leased, or marketed sfas 86, august 1985 accounting for the costs of computer software to be sold, leased, or otherwise marketed asc 985605. For those in the technology sector that follow statement of position 972, software revenue recognition sop 972 for revenue. Issued in october 1997, aicpa statement of position sop 97 2, software revenue recognition, provides detailed guidance on accounting for revenue associated with software and softwarerelated arrangements.
Guidance to practitioners in conducting and reporting on an agreedupon procedures engagement to assist management in evaluating the effectiveness of its corporate compliance program fulltext. Saas accounting software use sop 97 2 accounting vsoe for undelivered elements typically recognize license on delivery support recognized over period service use eitf 81 accounting generally ratable over subscription period. The new standard, scheduled to go into effect in 2018, will impact in some ways or others most, if not all, companies that follow us accounting principles. Implementation guidance on statement of federal financial. Eitf 97 2 by clicking on the accept button, you confirm that you have read and understand the fasb website terms and conditions. Software revenue recognition aicpa sop 97 2 software revenue recognition asc 35040. Change is definitely coming to the world of revenue recognition. Fasb has a longstanding taskforce working on a revenue recognition project whose outcomes will likely continue to broaden the types of business models and range of industries affected. These policies and procedures have been designed to help safeguard the churchs assets and to promote accuracy, efficiency and consistency in accounting and business operations throughout the church. The purpose of this issue paper is to address sop 97 2, sop 984, sop 989 and eitf 003 and establish statutory accounting principles that are consistent with the statutory accounting principles statement of concepts and statutory hierarchy statement of concepts. As evidence that change is the only constant, sop 972 software revenue recognition has subsequently been modified again to adjust for changing business conditions. Modification of sop 97 2, software revenue recognition, with respect to certain transactions fulltext.
Sop 972 should limit their software support practices and obligations. Some firms mentioned that implementing sop 972 rules led to deferral of revenues electronic arts inc. By clicking on the accept button, you confirm that you have read and understand the fasb website terms and conditions. The primary authority for software revenue recognition is aicpa statement of position sop no. At the time of its issuance, sop 97 2 primarily applied to companies that sold software. Use this predefined template as a general guide for recognition of software revenue in accordance with sop 97 2, sab 104, and eitf 0021. Sop 97 2 was one of the first comprehensive revenue recognition accounting guidelines defined for a specific industry, undoubtedly it will not be the last. Dec 14, 2010 changes the timing of accounting for discounts. Nusbaum in this position, he is responsible for all accounting and auditing policies and overseeing all technical matters for clients. Other than that, standard operating procedures offer a number of advantages such as the following. Authoritative literature aicpa statement of position 972, software revenue recognition aicpa statement of position 984, deferral of the effective date of a provision of sop 972, software revenue recognition aicpa statement of position 989, modification of sop 972. The provisions of this sop that extend the deferral of the application of certain passages. Overall responsibility for data entry into accounting system and integrity of accounting system data 2. For most software accounting departments, it became the bane of their existence.
A few firms blamed sop 97 2 for their poor performance aspyra inc. New standards update sop 972 software revenue recognition. The file contains 36 pages and is free to view, download or print. In the united states of america complex revenue recognition rules are applied sop 97 2. Financial accounting is the process of recording, classifying and summarizing, in quantitative terms, the economic events of a business. Sop 972 is amended by sop 989, modification of sop972, software.
Under sop 972, recognition of revenue for an arrangement including a single software occurs at delivery if the following four conditions are met. Standard operating procedures continue to affect not only the entire flow of company procedures but also the wellbeing of an employee. Sop 97 2 should limit their software support practices and obligations. Accounting for a services element under sop 972 versus sop 811 95 effective date and transition 97. Revenue arrangements with multiple deliverables scope all multiple element arrangements not specifically addressed by other accounting literature such as.
Sop 911 and sop 97 2 were issued by the aicpa to provide industry specific guidance within the conceptual framework provided by sfac no. The task force discussed whether the tentative conclusion would provide. When apple first introduced the iphone in 2007, the company announced it would use the. May 03, 2015 under sop 97 2, recognition of revenue generally occurs at delivery if a fourpart conjunctive test is met. Sop 97 2 is amended by sop 989, modification of sop 97 2, software revenue recognition, with respect to certain transactions. Discretion in revenue recognition timing and comparability. A publication of the american institute of certified public. Eitf 972 by clicking on the accept button, you confirm that you have read and understand the fasb website terms and conditions. Issued in october 1997, aicpa statement of position sop 972, software revenue recognition, provides detailed guidance on accounting for revenue associated with software and softwarerelated. Aicpa sop 972, software revenue recognition aicpa sop 981, accounting for the costs of computer software developed or obtained for internal use aicpa sop 002, accounting by producers or distributors of film eitf 002, accounting for web site development costs. One of the difficulties lies in determining whether or not 972 applies. In addition to the notion that sop 97 2 sets higher standards in multipleelement accounting, it also presents more situational examples than other, more general revenuerecognition literature. Software revenue recognition aicpa sop 97 2 software revenue recognition accounting for the costs of software for internal use asc 35040 based on aicpa sop 981 three stages to develop software 1.
Some firms mentioned that implementing sop 97 2 rules led to. Sop 911 and sop 972 were issued by the aicpa to provide industry specific guidance within the conceptual framework provided by sfac no. Sop 911 stated that the accounting treatment of undelivered elements in a contract depended on. Some firms mentioned that implementing sop 97 2 rules led.
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