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Revenue recognition in the technology space can be tricky. Our client had two primary concerns related to new and future contracts under which they were charging implementation fees to customers. The issues in question: 1) whether implementation services provided by the client represented distinct performance obligations and, if they represented distinct performance obligations, 2) the pattern of recognition. Resolution of these issues would result in clarification of the client’s accounting policies and impact the results of operations.
We employed our technical expertise in revenue recognition accounting, which includes experience in the revenue recognition issues specific to software providers. Our analysis involved obtaining an understanding of the client’s contracts and the nature of the services provided to formulate a supportable position. In addition, we provided a model that compared the approaches to illustrate the impact on the client’s financial statements.
We determined that the client’s implementation services were a distinct performance and that it should be recognized over time based on the nature of the obligation. The client was pleased with the clarification as it provided them with a supportable accounting position for drafting future customer contracts. Our client appreciated our ability to not only provide technical accounting assistance and documentation, but to also provide practical approaches so that the business has consistent processes to employ that won’t cause accounting and reporting headaches.