Revenue Recognition is changing for Tech Companies and Others with Multiple Deliverables
Submitted by Don Gutman
One of the constant accounting challenges companies face is the development of an appropriate revenue recognition model for the broad array of products and services they sell to customers. We have seen many examples of public companies restating financial statements as a result of using inappropriate revenue recognition methods. A classic example of this issue can be found in the cell phone industry where it is common for the seller to provide a free phone, a multiple-year service contract and other services all in one contract with the customer. The customer in turn may pay a one-time activation fee, a highly discounted fee for the phone and a separate monthly fee for the basic service. In this fairly basic example, products have been delivered, cash flows have started and a reasonable expectation of future payments exists. Continue reading »
Updated FASB Guidance for Revenue Arrangements That Include Software Elements
Does your business sell a product that includes a software component that is essential to the product’s overall functionality? If so, the newly approved FASB Accounting Standards Update (ASU) (2009-14) provides guidance that will be applied prospectively for revenue arrangements entered into or materially modified for fiscal years beginning on or after June 15, 2010, and early adoption is permitted.
The FASB standards require that all hardware components of a tangible product containing software components be excluded from software revenue recognition guidance Continue reading »
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