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SAAS Revenue Recognition (boy, these rules are different)

While I know a little bit about SAAS accounting issues, there are people that know a lot more about it. I ran into Jay Howell (from BDO Seidman) at a recent SAAS seminar I presented at (regarding SAAS contracts) 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 SAAS accounting/finance types). Any SAAS business should have the right person look at this, 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 (like comparing an apple to an orange) from the typical rules regarding software accounting and revenue recognition (different rules and different interpretations). Don't think of them as similar at all. (see page 6 of his presentation)

2) Less VSOE Proof Requirements. The good news is the SAAS accounting rules are less stringent on the requirements regarding VSOE, so this creates some additional flexibility for the SAAS model. (see page 8 of his presentation) Here is a definition of VSOE if you have not heard of it before. Note to self: figure out how to use this flexibility.

3) More Flexibility in Sharing Your Roadmap with SAAS Customers. Typically if a software licensing company commits 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 here. Note to self: use this as an advantage when competing with a traditional software licensing competitor. (see page 31 of his presentation).

Ok, here are the links.

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

Short Version (for the non-accounting/finance types; but willing to read a few pages on this technical issue).

Resources:

Interesting Post by Netsuite CFO

Another One of My SAAS Revenue Recognition Blog Posts.

Disclaimer: This is for informational and educational purposes, and no legal advice is provided. Consult your attorney for legal advice.