SAAS Revenue Recognition Rules (boy, this stuff is different)

While I know a little bit about SAAS accounting issues, there are people who know a lot more about it. I ran into Jay Howell (from BDO Seidman) at a recent seminar in Washington DC (he is the technical guru on SAAS issues at BDO), and I thought I would share some of his presentations and materials (really good stuff for you accounting/finance types). Any SAAS business should have the right person looking at this as part of their business growth strategies, especially as these new rules took effect on June 15, 2010.

Before I give you the links, I thought I would share a few points that resonated with me.

1) SAAS Accounting Rules are Different. Yes, these rules are very different from the typical rules of software accounting. Don’t think of them as similar at all (see page 6 of his presentation).

2) Less VSOE Proof Requirements. Here is a definition of VSOEThe good news is the SAAS rules are less stringent on requiring VSOE, so this does create some flexibility in SAAS revenue recognition (see page 8 of his presentation).

3) More Flexibility in Sharing Roadmap with SAAS Customers. Typically, if a software licensing company really commits to or says too much about their roadmap, then the license revenue will be deferred and cannot be recognized upfront. Well, in the SAAS accounting world there is more flexibility in this area (see page 31 of his presentation).

Any SAAS company looking for growth equity or a venture capital investment should take a read.

Long Version: Jay’s 45 Page Presentation (pretty technical if you ask me, so give this to your accounting/person).

Short Version (for the non-accounting/finance types; but you have to be willing to read about a technical issue).

Jeremy Aber
Jeremy Aber
President and Shareholder

Jeremy Aber consults OpenView portfolio companies on legal and contract matters. Jeremy runs his own IT focused law firm, the Aber Law Firm, and has over 18 years experience in technology and corporate law.
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