The requirements for the establishment of objective evidence specific to the credit provider (VSOE) under the old revenue recognition standard were more stringent than the qualification criteria for the residual approach. FinREC therefore concluded that the previously established VSOE was considered an observable stand-alone selling price. If VSOE is present, it is preferred and should be used instead of the rest of the approach. Things will change under ASC 606. First, you need to determine if the software license is different from the maintenance and updates of the agreement. If so, the license and pcS would be considered separate delivery elements, whether the license is time-based or indeterminate. The word operational may be different here. To be considered unambiguous, a delivery item must meet the following tests: As you know, software providers generally sell their products on permanent or temporary licenses. Under today`s GAAP, revenue from indeterminate software licenses is recorded when the software is made available, while sales related to maturity licenses are often accounted for in proportion to the duration of the license.
Regardless of licensing, Post Contract (PCS) services, such as maintenance and updates, are generally merged with the portion of contract costs allocated to PCS and recognized monthly during the period during which services are provided. Pretty easy to understand. Guarantee Shouldn`t the routine of the warranty be interpreted as a right to cancel the customer? The new SOP provides that royalties in agreements with a right of withdrawal for customers are neither fixed nor determinable until the expiry of the customer`s right of withdrawal (and therefore do not meet the basic criteria for revenue recognition)20 As a general rule, a guarantee provides that the software licensed essentially meets a criterion defined by the supplier , such as standard vendor documentation.B. that comes with licensed software. However, if the guarantee is based on a more extensive custom criterion than a guarantee normally granted by the Seller, it can be assumed that the User has a right of withdrawal that results in a deferral of the turnover until the expiry of the guarantee. Therefore, the lawyer should confirm with the client that the warranty granted to a user is based on the seller`s standard documentation. Will the duration of the guarantee be revived by future events? Counsel should carefully consider the provisions of the warranty for events that trigger the application of the guarantee clause.
