This guidance is codified in asc 985605, software revenue recognition. Issues papers of the accounting standards division aicpa. Jun 01, 2000 in october 1997, the aicpa issued statement of position sop 97 2, entitled software revenue recognition. Software revenue recognition on the rise journal of accountancy. Statement of position sop 972, aicpa, new york, 1997 that removed software firms flexibility to recognize revenues using sellingprice estimates. Software revenue recognition superseded by aicpa sop 911, software revenue recognition aicpa sop 911 was subsequently superseded by aicpa sop 972, software revenue recognition. Deloitte united states has published the second edition of software revenue recognition a roadmap to applying aicpa statement of position 972 pdf 169 pages, 886k to address some of the most difficulttointerpret provisions of sop 972 as well as provide a new overview of the main topics in sop 972 under the following headings. Citeseerx document details isaac councill, lee giles, pradeep teregowda. Detailed implementation guidance is provided for all rules and regulations. American institute of certified public accountants aicpa historical collection. Revenue recognition on software arrangements appendix c of sop 972. Software entities revenue recognition task force aicpa. Particularly, i examine the setting of sop 972 aicpa in software revenue recognition.
Citeseerx constructiontype and certain productiontype. This guidance is codified in asc 985605, software e revenue recognition. As technology becomes further entrenched in consumer and enterprise products, companies outside of the traditional software. Dating back to 1887, our organization represents over 400,000 professionals from around the world. The statement was released due to changing business models within the software industry and was known as sop 972 software revenue recognition.
The auditing standards board asb has issued this exposure draft to provide appropriate guidance regarding written management representations to be obtained by an auditor as part of an audit performed in accordance with generally accepted auditing standards. Sop 972, software revenue recognition, as codified in asc topic 985, to software arrangements. This statement adopts aicpa statement of position 972, software revenue recognition paragraphs 691 with certain modifications. Committee acsec of the american institute of certified public accountants aicpa issued statement of position 972, software revenue recognition. Provides information on the statement of position sop no. Executive summary statement of position sop 972 provides guidance on applying gaap in recognizing revenue from software and software related transactions. Dec 11, 2003 1 eitf 0021, revenue arrangements with multiple deliverables. Dec 14, 2000 the commission alleges that the companys reporting failures primarily derived from its premature recognition of revenue. By clicking on the accept button, you confirm that you have read and understand the fasb website terms and conditions. Technical practice aids issued on fasb interpretation no.
As revenue recognition accounting changes, companies are spending more time and money to keep up. I find that sop 972 implementation did not improve the contracting role of earnings. Citeseerx aicpa statement of position 972, software. Citeseerx aicpa statement of position 972, software revenue recognition aicpa statement of position 989, modification of sop 972, software revenue recognition, with respect to certain transactions issue citeseerx document details isaac councill, lee giles, pradeep teregowda. Aicpa statement of position 972, software revenue recognition aicpa statement of position 989, modification of sop 972, software revenue recognition, with respect to certain transactions aicpa technical practice aids, section 5100. Aicpa statement of position 989, modification of sop 97 2, software revenue recognition, with respect to certain transactions paragraphs 68. Surgents revenue recognition in the technology sector. American institute of certified public accountants. At the time of its issuance, sop 972 primarily applied to companies that sold software. To link to this page, paste this link in email, im or document. Financial accounting standards board fasb revenue recognition. The primary authority for software revenue recognition is aicpa statement of position sop no. Examples of the application of certain provisions of this statement of position appendix a of sop 97 2 104 response to comments received appendix b of sop 97 2 109 revenue recognition on software arrangements appendix c of sop 97 2 110 glossary from sop 97 2 1.
Created to influence the development of accounting standards and guidance, it was the 103rd statement issued by the aicpa. Constructiontype and certain productiontype contracts aicpa statement of position 972, software revenue recognition 2008. Superseded ssaps and nullified interpretations int 04. The sop provides instruction on recognition for licensing, selling, leasing. As a result of comments received and in connection with issue 093 the task force made substantive changes to issue 081. Hello select your address todays deals best sellers find a gift customer service registry new releases gift cards sell amazonbasics coupons whole foods. Constructiontype and certain productiontype contracts aicpa. Revenue recognition for software products with multiple. Issued by the accounting standards executive committee acsec, sop 972 provides guidance on applying revenue recognition principles to software transactions. Sec brings civil charges against microstrategy, three. Eitf and revenue recognition cpa accounting and auditing.
Determining how and when to recognize revenue for software licensing arrangements continues to be challenging even though it has been more than a decade since the accounting standards executive committee acsec of the american institute of certified public accountants aicpa issued statement of position 972, software revenue recognition. The guidelines, entitled statement of position 972, software revenue recognition, described in this article as the new sop supersedes statement of position 911 sop 911 on the same subject. The aicpa has issued a new audit and accounting guide on the revenue recognition standard. The guidance in asc 985605 is applicable to transactions involving the licensing, selling. This special report covers the recently released aicpa statement of position 972, software revenue recognition. Applicability of aicpa statement of position 972 to. 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, software revenue recognition, with respect to certain transactions fasb emerging issues task force 003, application of aicpa statement of position 972 to. The aicpaa s accounting standards executive committee acsec recently issued statement of position sop 972, a software revenue recognition,a which supersedes the provisions of sop 911, a software revenue recognition. Software entities revenue recognition task force aicpa revenue recognition task forces are charged with developing revenue recognition implementation issues that will provide helpful hints and illustrative examples for how to apply the new revenue recognition standard. The latest chapter in that history is statement of position sop 972, software revenue recognition, issued by the aicpa s accounting standards executive committee acsec in october 1997. Some transactions may require deferment of all of the revenue until delivery of the last portion of the package. Dec 19, 20 particularly, i examine the setting of sop 972 aicpa in software revenue recognition. Gaap consolidation identifying a controlling financial interest contingencies and loss recoveries contracts on an entitys own equity convertible debt current expected credit losses disposals of longlived assets and discontinued operations distinguishing. Revenue recognition for software companies softrax.
Access to the american institute of certified public accountants aicpa ed standards, as posted at this website, is permitted only through each of the individual links. Sop 97 2 has also been interpreted by the emerging issues task force eitf 003, application of aicpa statement of position 97 2 to arrangements that include the. The software industry has unique accounting concerns, such as capitalization of development costs and software revenue recognition. Asu 201714, income statement reporting comprehensive income topic 220, revenue recognition topic 605, and revenue from contracts with customers topic 606. Issued in october 1997, aicpa statement of position sop 972, software revenue recognition, provides detailed guidance on accounting for revenue associated with software and software related arrangements. Activities or transactions within the scope of sop 972, software revenue recognition section 10,700 f. What was not clear was how bright lines would blur for companies outside of the traditional software sector as technology evolved over the next decade. Sop 972 governs how any company that licenses, sells, leases or otherwise markets software unless its incidental to the product or service as a whole must recognize the revenue.
Statements of position american institute of certified. Aicpa statement of position 97 2 allows revenue to be recognized from software sales if persuasive evidence of a sale agreement exists, delivery has occurred, the vendors fee is fixed and determinable, and collectibility is. 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 public accountants aicpa, have been issued by the aicpa s accounting standards division since 1974 and are meant to influence the development of accounting standards and to propose revisions to. Keeping you informed and prepared amid the coronavirus outbreak.
The latest chapter in that history is statement of position sop 972, software revenue recognition, issued by the aicpas accounting standards executive. 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 software related arrangements. Changes to the accounting for multiple element arrangements under aicpa statement of position 972, software revenue recognition, that contain software enabled products. In accounting practices, vendorspecific objective evidence vsoe is a method of revenue. Formerly aicpa statement of position 972, software revenue recognition. Vsoe revenue recognition is commonly used by companies that sell software products and services in. Background on software revenue recognition aicpa statement of positions 972 and 989 new york times article describing cas accounting practices 4292001. Executive summary statement of position sop 97 2 provides guidance on applying gaap in recognizing revenue from software and software related transactions.
New standards update sop 972 software revenue recognition. It applies to both public companies according to sab 104 and private enterprises. In october 1997, the acsec of the aicpa issued statement of position 972, software revenue recognition sop 972. The ultimate objective of attributing arrangement consideration is to determine when the arrangement consideration should be recognized as revenue. The portfolio includes an extensive analysis of the applicability and application of american institute of certified public accountants aicpa statement of position no. Aicpa statement of position 972, software revenue recognition, was issued in an era when software was not embedded in as many products as is now the case and has rapidly become out of date. Solved accounting for software revenue recognition is. Products within the scope of emerging issues task force eitf issue no. The right way to recognize revenue learn the components of sab 101 and mistakes to look out for. Aicpa statement of position 911, software revenue recognition sop 911 aicpa statement of position 972, software revenue recognition sop 972 sec staff accounting bulletin no. As set forth in concepts statement 5, paragraph 83, recognition involves consideration of two factors, a being realized or realizable and b being earned, with. Mar, 2012 as revenue recognition accounting changes, companies are spending more time and money to keep up. Changes to the accounting for multiple element arrangements under aicpa statement of position 972, software revenue recognition, that contain softwareenabled products. For most software accounting departments, it became the bane of their existence.
The commission alleges that the companys reporting failures primarily derived from its premature recognition of revenue. New eitf revenue recognition standards for multiple. When statement of position 972, software revenue recognition, was. 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.
A comprehensive guide software revenue recognition. The financial accounting standards boards fasb accounting standard on revenue recognition, fasb asu 201409, eliminates the transaction and industryspecific guidance under current u. An entitys arrangement fee may be based on a percentage or share of a customers revenue from the exhibition or other exploitation of a film. Financial reporting developments software revenue recognition 1 1 introduction and scope 1. 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 public accountants aicpa, have been issued by the aicpas accounting standards division since 1974 and are meant to influence the development of accounting standards and to propose revisions to. New revenue recognition guidance and the potential for. Recognition a roadmap to applying aicpa statement of position 972 equips.
Accounting standards executive committee, software revenue recognition. To link to the entire object, paste this link in email, im or document. Aicpa statement of position 972 allows revenue to be recognized from software sales if persuasive evidence of a sale agreement exists, delivery has occurred, the vendors fee is fixed and determinable, and collectibility is. Software the primary authority for software revenue recognition is aicpa statement of position sop no. Principles, identifies aicpa statements of position that have been cleared by the. Software industry accounting, 1996 cumulative supplement 1st. Software revenue recognition superseded by aicpa sop 911, software revenue recognition aicpa sop 911 was subsequently superseded by aicpa sop 97 2, software revenue recognition. Software revenue recognition under sop 972 the cpa journal. Application of aicpa statement of position sop 972, software revenue recognition. Sellingprice estimates in revenue recognition and the. The institutes accounting standards staff releases a. The issue is whether non software deliverables included in an arrangement that contains software that is more than. Incharge role for software lessor software revenue recognition asc 985605, formerly sop 972 and capitalization asc 98520, formerly sfas 86 incharge role for native american casino. At the time of its issuance, sop 97 2 primarily applied to companies that sold software.
Aicpa statement of position 911, software revenue recognition sop 911 aicpa statement of position 972, software revenue recognition currently under topic 985 sop 972 sec staff accounting bulletin no. Institute of certified public accountants aicpa statement of position 972 sop 972 and sop 989 the residual method. A performance obligation is a promise in a contract with a customer whether explicit or implicit to transfer to the customer either a distinct good or service or bundle. This guidance is codified in the accounting standards codification asc at 985605, software revenue recognition. Roadmap to understanding the new revenue recognition standards in may 2014, fasb issued accounting standards update asu 201409, revenue from contracts with customers topic 606, and the international accounting standards board iasb issued international financial reporting standards ifrs 15, revenue from.
To embed the entire object, paste this html in website. American institute of certified public accountants, inc. Introduction overview in october 1997, the american institute of certified public accountants aicpa adopted a new set of guidelines for revenue recognition in software transactions. In october 1997, the aicpa issued statement of position sop 97 2, entitled software revenue recognition. Sec chief accountant lynn turner sends a letter to the aicpa identifying inappropriate revenue recognition practices being seen by the sec staff and calling for existing aicpa guidance on software revenue recognition to be applied by other industries. Aicpa is the worlds largest member association representing the accounting profession. Were gathering the latest news stories along with relevant columns, tips, podcasts, and videos on this page, along with curated items from our archives to help with uncertainty and disruption. The sop provides instruction on recognition for licensing, selling, leasing or otherwise marketing software. Statementofposition002 accountingbyproducersordistributors. Amendments to sec paragraphs pursuant to staff accounting bulletin no. When statement of position 972, software revenue recognition, was issued in october 1997, it was clear that all software companies would transition to this new standard. The right way to recognize revenue journal of accountancy. Revenue recognition software sop 972 wittsiepe consulting. Application of sop 972, software revenue recognition, to transactions involving software enabled devices is leading more and more to financial statement presentation that does not always provide a reasonable representation of a companys performance.
The guidance of sop 972 is effective for software arrangements entered into in fiscal years beginning after december 15, 1997. In such instances, and when the entity meets all of the other revenue recognition conditions, the entity should recognize revenue as the. Business combinations business combinations sec reporting considerations carveout transactions comparing ifrs standards and u. In october 1997, the aicpa issued statement of position sop 972, entitled software revenue recognition. This case is designed to examine revenue recognition issues for software development firms.
Gaap and replaces it with a principlesbased approach. Financial reporting developments software e revenue recognition iii 1 introduction and scope 1. Aicpa statement of position 972, software revenue recognition aicpa statement of position 989, modification of sop 972, software revenue recognition, with respect to certain transactions issue. Change is definitely coming to the world of revenue recognition. Issued by the accounting standards executive committee acsec, sop 97 2 provides guidance on applying revenue recognition principles to software transactions. This publication includes the appropriate references from the asc. The guidance is already in effect for public companies. The aicpa accounting standards executive committee acsec issued two statements of position sops. Aicpa, profession offer strong response to hurricane katrina.
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