New Products Require New Way of Thinking About Revenue Recognition

Challenge

A mid-sized software company became dissatisfied with the large national firm that was performing their accounting work. Aside from the quality of client service, the company wasn’t receiving the guidance they needed on major accounting issues, such as how to meet the changing requirements of the revenue recognition rules. Like many other software developers, the company began to add new software products that were sold as Software-as-a-Service (SaaS), in addition to their perpetual license products. With the addition of these new products came new accounting regulations that would pose challenges. The company became concerned about how revenue recognition – and ultimately their net income – would be affected. The company decided they needed an accounting firm that was an attentive and collaborative partner that could provide expert counsel. They sought out a firm that would not only provide excellent accounting and auditing services, but also be a thoughtful and strategic business consultant.

Solution

Wolf & Company was chosen and our team of experts immediately went to work with the company to help them better understand the accounting interpretations and implications of their business plans. The Wolf team worked with the CEO, CFO, and legal team to create a strategic approach to the way agreements were structured with clients, maximizing the outcomes for revenue recognition while complying with all applicable rules.

Wolf helped the company put in place carefully worded phrasing around the deliverables in their agreements with clients, which allowed them to realize more immediate revenue, while carrying less future liability on the books. From their experience with the existing regulations regarding software revenue recognition issues, Wolf advised the company how to best structure their accounting patterns to support the fair value allocation of deliverables. The shared goal between Wolf and the company was to make the revenue recognition strategy support the company’s business plan in the best way possible.

Result

Wolf came in ready to work collaboratively with senior management and to help the company make more informed decisions regarding accounting. As a result, the company was able to get product plans in place and be fully aware of the best accounting process to sell and market the SaaS product before it goes to market. This initial work by Wolf reduced the chance of any audit surprises at the end of the fiscal year and prevented the “trial and error” method of revenue recognition often practiced by software companies.

Due to Wolf’s responsive client service and expertise, the controller of the company regularly calls the Wolf team for advice and counsel on revenue recognition issues.