SAAS Accounting: How the New Rev Rec Rules will impact Technology Companies
Led by Rita Dhir, PwC Director
Date: September 2015
Event: Accounting Update for Technology Companies Conference
Here is a link to similar upcoming events: 2016 CPE Events
Speaker bio: Rita Dhir is a Director in PwC’s National Professional Services Group based in San Jose. She has over 15
years of experience in serving technology companies ranging from venture capital-backed start-ups to public
multinationals in the computers and networking, software, internet and semiconductor industries. She
has advised non-audit clients in their successful implementation of the new revenue recognition
standards, including establishing fair value / estimate of selling price for multiple element transactions, and
related design of effective internal controls. Rita graduated from the University of Illinois at Urbana-
Champaign with a B.S. and M.S. in Accountancy, with a special focus in Taxation. She is a member of American
Institute of Certified Public Accountants and the California Society of CPA.
Rita began the presentation with an overview of cloud computing including the definition, market size and characteristics of software-as-a-service (SAAS) companies. The next step was an examination of how to determine whether the arrangement falls under “software” or “service”.
Rita took the group through SAAS arrangements with multiple elements and the four stepsin an example:
Determine whether separate contracts are actually one multiple-element arrangemet
Identify all the deliverables
Determine which deliverables may be treated as separate units of accounting
Allocate the transaction consideration to units of accounting (VSOE, third party evidence, managements best estimate of selling price).
The presentation closes with a look at SAAS under the new revenue recognition rules:
Determine performance obligations
Allocate the transaction price based on relative standalone selling price
Management must estimate variable consideration (e.g., SLA) when determining the transaction price
SaaS arrangements that include a license of IP and have usage-based fee structures are likely to be recognized only when subsequent usage occurs
Contingent revenue guidance on allocation of revenue to services is replaced by application of the constraint to the transaction price
Collectability is assessed as part of the identification of the contract
