Software Entities and Revenue Recognition: It's Still Complicated

The technology industry continues to be one of the most impacted when it comes to revenue recognition. As companies continue to move through adoption and implementation of FASB ASC Topic 606, Revenue from Contracts with Customers, complexities related to subsequent changes in contract terms are coming to the forefront. One well known trend in the industry is that companies are largely moving away from a licensing model to one that provides a recurring revenue stream. For those entities that are migrating customers away from a perpetual license model to a subscription model, determining which part of the guidance to apply to the transactions can be complex. Industry-wide, questions are being raised as to which interpretations best follow the principles-based guidance. In response to this and other industry related issues, the FASB has tasked the Emerging Issues Task Force (EITF) with a project on contract modifications of licenses of intellectual property and has formed an industry working group to advice the EITF on the project. Private companies that are currently in the process of determining adoption impacts of the new standard should work toward finalizing impacts of the standard on initial recognition in order to be prepared to respond as additional clarity around contract modifications unfolds, and companies should continue to monitor ongoing EITF and FASB activity.