Enhance Your Accounting Workflow with Saas Inside Sales Model for Accounting

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well I'll go ahead while we're getting the slides to appear uh there we go great um so as capric mentioned we are a business software Solutions provider and business software categories commonly known as Erp or or related products and services we have a focus on technology company and we have a a product Suite that focuses on Revenue billing uh business model support for people who have uh software software companies or people who have software compliance or Revenue recognition compliance type requirements and so the software category tends to be fairly Broad in terms of Revenue recognition and incorporates other types of companies like uh service providers or IP providers and so on the types of things that we're supporting really follow on to three General functional areas one of them is the revenue management functionality one of them is billing support for certain types of business models that require Bill business model or or or billing support and contractual management support and the third one is really just understanding your business model your transaction flow and how it how the data gets to the revenue management and we'll talk just a little bit about that um in terms of the general category things we find that most people needs and and issues and pains fall into three General categories you visibility for the revenue and and the transactions and the customer history uh productivity or how to keep your your lean team as efficient as possible so that they're focusing on analysis instead of lots of manual transaction management and then compliance or or Regulatory Compliance as we're going to talk about today quick could forward the slide please I think it's helpful just in terms of talking about names and and companies and so on that that we have worked with uh you know a good bit over 125 tech companies at this point and sometimes itself s will just to throw up some names or or some some company logos and and so on uh to you know give people a feel for the types of the breath of the industry um looks like the slide hasn't fully loaded and so may need to do a little more of a build there I think you'll recognize there are names on here that are public and private companies people that are emerging and and and established players people that sell Hardware devices with embedded software and pure software people that sell OEM models and subscription models people that do high volume low cost trans actions and people that do uh fewer transactions and very high dollar so a real mix of things just like the tech industry itself next slide please so we'll just look at two things and then we'll turn it over to Jeffrey uh this is a little bit more on on the the business model support because I think that that's important for for people to understand that the systems need to match how your company does business and so the first thing is really for Revenue recognition as we go into the Regulatory Compliance discussion today is is how is the sales transaction generated and that's really the goto Market model or the business model that each company has so there is a a process or maybe multiple processes for how your company creates the transaction it can be from your website from your Erp system from our contract or or comp customer agreement management and once transactions are created you need to have a policy that that is determined ahead of time and then automatically applied to the transactions and so we do this by a different types of documents to allow you to have different compliance models within in one company and for a transaction based uh certainly the SOP 972 eitf 0801 um methodologies for determining the revenue base and then applying the revenue rules to that if we could go to the next slide please that would uh graphically illustrate the same concept so this is the same type of concept and and starting from the left going to the right we have the sales transaction creation and so if you think about people that sell a software as a service or people that sell a subscription based model your website or you may have some CRM system that creates your transactions if you have a complex customer agreement where you're managing multiple elements and parts and so on we do have a contract Administration suite for that and we've also done things to integrate to Erp systems to pull the data astray from an Erp if you have a shipment of a product that's going to a customer these sales transactions are created and put into the pool where Revenue methods are applied and determined the document flows determined the determination or base valuations determined and this determines your Revenue subledger your Revenue recognition that heads to your Erp and your reporting and Analysis and so this is a general flow of the types of things that we do and and certainly we're pleased to be sponsoring Jeffrey today and working with him and and there's a lot of compatibility between the types of Consulting and expertise that he has and the types of software that we seek to deliver to our customers next slide please so it's uh my pleasure to introduce uh Jeffrey uh tensoft is committed to providing revenue and contract management software to customers and we understand that software is only part of the total solution another element of managing Revenue recognition is is really um understanding the determination the application and the recognition of Revenue that mind we're working with thought leaders in the area to provide relative relevant information and resources to our customers and we have a good partnership with Jeffrey Werner Jeffrey Warner is an acknowledged ex expert in the area of software Revenue recognition he's Pro been providing Revenue recognition consulting services to software and Hightech companies since 2001 and uh prior to launching his Consulting business Jeffrey was a CFO of antrum Design Systems Mick signal synthesis company based here in Silicon Valley before that he was VP of Finance for telepost uh web-based communication Services Company list based in Santa Cruz and earlier in his career Jeffrey spent 11 years with KPMG Silicon Valley office where he was a senior manager he really has a broad set of experience both as the the type of person who is responsible for delivery of that uh information to all the constituencies in a company as well as advising other companies Jeffrey regularly teaches sare Revenue recognition classes in the San Francisco Bay area he has over 15 years of experience helping companies comply with Revenue recognition policies and Jeffrey is available for Revenue recognition Consulting eitf 801 comp uh implementation and and compliance support and and we've been really pleased and and have seen the great response that he gets from Consulting customers on both the value of what he delivers and and the way that he delivers it so Jeffrey the floor is all yours thank you Bob and welcome everyone to today's webcast we'll be discussing uh software as a service so this is our outline for our U webcast today the introduction which we've just participated in and a couple more items we'll talk about the sas's business model uh review the four Revenue recognition principles then we'll talk about SAS accounting when SAS is treated as software and when it's treated as a service and some other related topics setup fees related costs Consulting and trading services and fees based on usage so just another uh introduction myself I do a variety of Revenue recognition services including uh contract review and Consulting vsoe studies uh training courses and recently we've been working on a lot of eitf 8-1 implementation there's quite a bit of interest in that topic also want to mention an upcoming event on Thursday May the 19th and Wednesday May the 25th there'll be uh two halfday webcasts on software Revenue recognition this sort of a software Revenue recognition 101 there's CPE credit for that it's a paper attendance event and registration and details will follow soon here's a a brief outline of what we're doing uh Revenue recognition principles we'll talk about multiple element Arrangements vsoe license support and services issues in day one in day two we'll review um the items that we talked about in the previous session on on the 19th we'll talk about Services contract accounting software as of service a little more in depth than we're covering today uh the new eitf 8-1 and 9-3 and also a look at the future with the fbb Revenue recognition project again if you have any questions during the course of the webcast you're welcome to present them in the question tab any questions we don't get to during the the webcast today you can uh also email them to me I will respond directly to you and also will be posting uh the questions and the responses on the uh tin soft Blog the recording and the slides will be available at the tin soft uh Resource Center in about 24 hours so now let's begin with the uh sath business model if we think back to the way software industry is uh evolved over time back in the Mainframe era a lot of uh companies accessed uh Computing software via a time share model then we had Perpetual licensing with the the mini and the PC area era we had items such as license fees support fees implementation fees and it had a high cost of ownership the costs tended to come up front there was a long time to implement and customization was required over time term licensing also became U one of the software licensing models in the Eda industry we used this quite a bit spread the cost over the periods of use then we moved into software as a service with the evolution of the internet 10 or so years ago it became a question of whether a company wanted to have a service or they wanted to own the soft Ware and salesforce.com was a real leader in this area made SAS acceptable to a lot of uh of customers and before we move into uh some of the benefits and uh drawbacks of SAS as a Ser software as a service SAS we'd like to do our first polling question for those of you that are interested in uh CPE credit so Capri if you could uh pop that up and we'll get the uh the polling question going so I'm not seeing that is is the has the question come up uh yes um the the polling question is out there okay could you read it because I'm not seeing those oh all right um the question is uh does your company have multiple element SAS Arrangements uh yes no or not applicable and uh we do have um uh let's see looks like 83 84% of the folks have voted I'll give it another few seconds Jeffrey and then I'll um close the polls um okay just a reminder that uh if you do want CPE credit you must um answer all the polling questions so um okay so we'll move forward then with um software as a service some of the customer advantages are it's easy to implement it's ready to go it's a standard setup there's typically low upfront cost and the cost is incurred over time you pay as you go uh there's lower internal it cost because the vendor keeps the uh software running and there's less of administration of licenses you don't know how many to buy you don't get licenses lost on computers that are no longer used updates are automatic so that you don't have to go out and find each individual computer and update it it's an easy access over the Internet uh browser interface from many uh computer that has internet access and it's network based rather than PC based some of the vendor uh advantages are it can be potentially easier sale since there's lower upfront uh costs and there's lower uh cost of ownership it's a pred ictable and ratable uh Revenue model for uh the vendor it's easy to upgrade and change features and to uh keep all your customers on the same version so you don't have multiple software versions to uh maintain and your customers are locked into usage it can be hard uh to change to another vendor once uh you you get in there on its ease of use some of the disadvantages from the customer perspective and this was particularly true at the onset of of uh Mission critical resources in the control of uh an outside vendor your data is uh at the vendor so there's privacy uh concerns and up times dependent on the vendor and the internet from a vendor perspective there's no one-time large uh uh Revenue hits from uh large customer sales and you really need to have a customer focus uh to provide that service to your customers in a really high capacity or you can lose your your customers we take a look at the general principles of Revenue recognition they apply to SAS as they do to all revenue transactions and the first one is that persuasive evidence of an arrangement exists so there needs to be a contract of some kind an agreement between the customer and the vendor delivery has to have occurred so that typically occurs over time in a sass Arrangement on a monthly weekly or annual basis the fee needs to be fixed in determinable so we know how much revenue to account for and collectibility needs to be probable so we need to meet all four of these uh criteria in addition to the various specific policies and practices that we'll talk about later in the in the webcast and uh there's just an easy pneumonic device that I like to uh keep handy in software or Revenue recognition it's not ABC it's cdef c is the colle ction D is the delivery e is the evidence and F is the fixed and determinable fee a little slightly different order than we presented them and you normally hear of them but if you you're having trouble remembering what one of the items is if you if you got the four fingers in the cdef you can keep that uh easily in mind some of the accounting literature that we uh refer to and that we access in uh SAS uh Revenue recognition accy of course statement of uh operating uh sop 97-2 and 98-9 software Revenue recognition statements of position um SEC staff accounting bulletins 101 and 104 the various uh tpas or technical practice AIDS from the aicpa U the ef's o-3 o21 0 3-5 and then and the recent EFS which are uh now in uh now required starting in 2011 for calendar year companies eitf 8-1 and 9-3 of course all of these except the the sabs are now under the new fastb codification with um their new uh codification numbering and referencing systems but I find that most people still refer to them by the uh the old uh numerical uh and pronouncement that they came out under also you know we're looking forward to the uh changes that'll happen in the future with Revenue recognition the the fby and the ISB have a revenue recognition project they issued white paper last summer comment period closed in October and they're now re refining um that uh exposure draft based on the comments that uh have been coming in so let's take a look at SAS accounting um the big question to answer in in SAS accounting is whether the transaction is software or whether it's a service because we're going to have different accounting depending on which category we fall into so we considered it to be software if the customer takes possession so the customer takes possession on their server it's delivered to them either typically electronically or they have the right to take possession from the vendor without significant cost this is an important uh qualifier there significant costs um even if the customer has the right to take the software take possession of the software if for example they were on a three-year uh subscription service and they'd have to still pay the balance of that subscription and they were in year one there'd be a two-year penalty for that that would probably be considered a significant cost and so we wouldn't consider that a software transaction that would that would be a service transaction the customer has to have the ability to use the software independent of the vendor whether they do that initially or whether the the vendor hosts the software for them it can be a Perpetual uh license or a term uh term license with the right of use over a specific period of time you typically see license fees and support fees upgrades uh are either part of Maintenance or a paid upgrade and the data typically resides at the customer when they uh load it on their Ser server or maybe use a uh an independent third party to uh host it when is it a service SAS uh software as a service is a service if it's hosted by the vendor you typically going to see monthly or usage type fees the data is going to reside on the vendor's server the data transition or conversion rights are provided for at the end of you so if the customer terminates there SAS relationship they can uh obtain their data or convert it to another system um SAS when it's a service is a right to use only and um often there's significant additional cost to take possession if there is a a right to take possession so that's the primary uh consideration we take it The Upfront of a of a transaction that we're trying to account for we need to determine whether it's software or a service and I think this would be a good time to do our second polling question before we move forward so if you could read that to us uh Caprice and um open the polls okay um the polls are open now uh the question is uh has your company implemented ef81 the relative selling price method for SAS transactions and the options are yes no in process and not not applicable so uh we are getting votes coming in pretty quickly on this one um and it's looking let's see we've got uh over 30% yes about 26% no 24% in process and 18% not applicable up to 33% yes so the majority of the companies between yes and in process are addressing um the implementation of eitf 8-1 yes I'll go ahead and close the polls now it looks like uh we've got um 91% in okay and then um so now and after we determined what type of accounting we're going to do whether it's going to be software or service then we apply the different Revenue recognition models for those two different types of transactions for software we're going to use sop 972 uh software accounting we're going to need vsoe for our undelivered elements and we're typically going to um recognize licensed revenue on delivery when we have vsoe for support or the other elements and support would be recognized over the support period if it's a service and we've got multiple elements we're going to use eitf 8-1 accounting generally we're going to have uh the service type transaction is going to be r over the subscription period the accounting for U multiple element Arrangements whether they're software or uh or SAS or service there's a two-step process we need to go through that's where we separate out into the different elements or maybe we determine that we only have one element and then allocate the revenue uh to those different uh elements and there's slight difference between the approach on both software and service to both of these um steps in our Revenue recognition process so we separate out the elements individual elements uh are elements that are independent and they are independent if functionally one's not essential to the other if contractually the payments aren't linked or contingent and there's no related refunds or rights of return on on a delivered item If an undelivered item wasn't provided um individual elements have Standalone value if they're sold separately by a vendor another vendor this is the new eitf uh 8-1 definition of Standalone value and if they have a resale value now if we can't separate out the elements into uh of the transaction into separate elements based on these uh criteria then we just have one unit of accounting and we we we treat it um AC ingly again with different Revenue recognition principles based on whether it's a software transaction or a service transaction and we're going to um allocate the revenue to those different elements again software Revenue recognition uses the residual method and service Revenue recognition is going to use now in 2011 we're going to use eitf 8-1 the relative selling price method if we're in software we're going to defer the full value of undelivered elements uh using vendor specific objective evidence and we must have that for an undelivered element in order to recognize revenue for the delivered elements and then whatever's left over we're going to allocate that REM remaining value or the residual to the delivered elements so that's where we the residual method name comes up again if we've got uh a simple transaction with a software license that's delivered and a support and maintenance that's provided over a one-year period if we have the soe for the support and maintenance we'd recognize that radly over the 12 months of the year and we would uh recognize the balance uh of the transaction after subtracting the support at vsoe on the delivery of the software license the relative selling price method differs because we allocate Revenue to each element based on the percentage of that element of the total value of the transaction it also differs because we have to have value for each element in the transaction if we have vsoe we use that or we can use uh third-party evidence which would be what a another vendor sells the item for absent those two types of values we're going to have to come up with an estimated uh selling price or ESP for the other elements in the arrangement and this is causing a lot of difficulty for companies particularly when they're used to the residual method where they could back into the value of any delivered element based on what the value of the undelivered elements were here every element needs to have a value we're going to defer the revenue for the undelivered elements based on their value of either uh their relative value and then we're going to recognize revenue for the delivered elements we're going to take a look at um some specific examples of these two methods so you can see how they work with numbers and examples of uh different situations when we have a SAS Arrangement that has multiple elements uh typically what we would see is our ongoing subscription fees or uh monthly or annual fees there might be uh initiation or setup up fees a company a vendor might provide Consulting Services uh both on work process and business optimization as well as uh training how to use the uh the the SAS service and also there might be usage fees either based uh separate from the subscription fee on the number of users the number of transactions processed or the uh the time that transactions were uh being transacted so in SAS we really if we've got more than one element there's a a big question we ask have to ask is there Standalone value often in uh SAS transactions there isn't Standalone value everything that's separately priced on the invoice in the sales transaction really relates to one thing the providing of the service over time um but we do have this uh criteria from 8-1 that standalone includes items that are sold separately by another vendor so we may in in situations now have another opportunity to uh uh have Standalone value for a customer based on the fact that a service or an item is sold by another vendor if we have uh upfront services or setup fees uh in the SAS Arrangement typically those upfront fees are un necessary and inseparable part of obtaining the services um on an ongoing basis so they can't be considered a standalone item a customer wouldn't buy them separately without the service and they would have little or no value to the customer without the uh the ongoing services and typically in a sass Arrangement a vendor is the only one who provides those uh upfront setup fees because they relate to the the software that's provided over the over the internet and is not an item that uh a vendor is going to open up to a third party to uh get inside the firewall and provide those Services revenue from upfront Services should be counted for over the initial contract period so if you've got a one-year H contractual period it would go over that period or if the expected customer relationship is a greater period than you'd use that period so maybe you have an estimated customer life of three years and you take those U upfront fees over the uh three year expected customer relation period for early uh adopters of the the SAS model and and and startups this is sometimes a a difficult estimate to come up with it but it's one that you you need to do and it will probably evolve and change over the time uh as the company as the vendor matures and uh has long longer customer relationship periods and has more information uh with which to uh make that estimate of what the relationship period is any costs that are related to the uh to The Upfront fees um we're going to we're going to need to determine how we want to uh account for those whether we're going to expense them incurred or if we're going to defer them and charge them into expense over the revenue period in order for cost to be uh deferred or capitalized that needs to be incremental and Dally related to the uh to The Upfront Services into this specific uh customer and if it is we we have an accounting option here to either expense as incurred or to defer and charge to expense uh proportionally over the same period as the related Revenue it's a an option that the vendor has but it needs to be applied consistently and disclosure is required in the revenue recognition policies that this is the methodology that you're using one thing we want to mention about incremental and direct cost is if it's a cost that would like an administrative cost within the vendor or a cost of service that's going to be present uh without regardless of whether the customers there so a a dedicated group of people that that are not assigned to a specific customer but provide a general service within the SAS Arrangement that's probably not going to be considered incremental uh or directly related to uh this particular customer so one other thing we need to look at is whether we have one contract or multiple contracts and we use the uh TPA 39 uh criteria to evaluate whether contracts are independent or related so if we um we sign multiple contracts with customer we need to determine whether we're going to account for those separately as individual contracts or if we're going to consider them one Arrangement and here's some of the considerations that we take into account some of the factors um with we have multiple transactions with a a customer if it's within a short period it can be considered one contract for accounting purposes and therefore if an element um lacks vsoe in a or we're going to have to come up with ESP for the all the elements um we look at whether all the related contracts are completed and signed in the accounting period so if we've got linked or related contracts and one signed in one accounting period and one signed in another accounting period we probably wouldn't meet the requirement that the evidence of the arrangement was complete this particularly happens with you know services or Sals that are referenced or being negotiated but aren't complete uh at the time of the close of an accounting period And I as we mentioned all the related contracts must be executed in the same accounting period in order for us to have uh complete evidence of arrangement and to be able to um account for them so some of the factors that we look at are whether the uh contracts or agreement are negotiated within a short time frame of each other whether they were uh executed between the same person on both the customer and the vendor side whether there's different elements that are closely related or independent or interdependent whether the fee for one or more of the contracts are elements is related to Performance uh of another contract whether one or more elements in one contract are essential to the other one whether the payments of the different contracts coincide or are dependent upon performance contracts or another and whether negotiations are conducted jointly um with two or more parts of the customer Organization for what is really one project those are all the TPA uh considerations if we look at them then we then we'll determine whether um we have one contract or multiple contracts I think we'll move into our third polling question now if you could read that please Caprice and then we'll open the polls for the answers okay um what difficulties did your company encounter when implementing ef81 the first option and this I believe you can pick multiple options here if uh that's the case uh separation of elements allocation of Revenue to elements determining es other and not applicable and early results uh determining ESP is well ahead at uh 42% % uh 26% or so um for allocation of Revenue to elements 22% for separation of elements and the others are other or not applicable actually quite a few are not not applicable so we're at uh 90% uh at this point I'll go ahead and close the polls and turn it back over to you Jeffrey thank you so we look at uh there's other elements that we might have in a an arrangement that would be usage fees and typically you're going to recognize the revenue for those usage fees when the usage occurs uh similar to the way we would look at a a metered approach like like with your your electric bill so let's take a look at a few examples the first we're going to look at is um the old accounting under uh o21 similar to the the software Revenue recognition model in this case the vendor sells an online service there's a $112,000 one-year contract so it's $1,000 a month over a one-year period it's renewable in year two for $1,000 and there's $5,000 in setup fees and we have an expected customer life of of three years so in this case using the old residual based method uh using vsoe which is no longer applicable but this is the methodology that most uh companies were using and are used to we'd recognize the Thousand um monthly service fee over the 12 months and we take that $5,000 setup fee when it's delivered we've delivered that and the service starts um we'd recognize that ratably over the 36 month period so we'd be recognizing $1,000 monthly for the service uh fee and recognizing $130 monthly for the setup fees so you can see the way the revenue Works using the residual model and notice that those setup fees are going over the expected life how they market and and uh price their products whether they want to have high setup fees which are going over potentially longer periods or having more of an Allin a fee approach example two with the same uh set of facts but now using the new accounting from eitf 8-1 the relative selling price method um we look at the the $122,000 service fee the $1,000 monthly we have the soe that because there's a renewal rate for that and we've got the $5,000 in setup fees which have been delivered we're going to use the relative selling price method so we'll use uh vsoe for the monthly service fee we're going to have to come up with a value for the setup fees and in this case we're going to have to use ESP our our best our uh estimated selling price and then calculate the relative selling prices of each of the items in the deliver in the transaction the $177,000 transaction so we'd see that uh uh we have $112,000 vsoe for the service fees and we have $88,000 estimated uh setup fees we discounted those in the deal they have relative value of uh $220,000 total so the the service fees are going to have a 60% um relative selling price and the setup fees are going to have 40% we'll apply that to the $117,000 total Arrangement fee and we'll get $10,200 allocated to the service fees 6,800 to the setup fees and you see that the the revenue is slightly different based on the relative selling price method when compared to the uh the residual method we'll take a uh a comparison here so in uh year one under the residual method we would have recognized 13,670 basically and using the relative selling price method we're using 12,000 for $500 because of the differences between the two methods here's example three uh we have a vendor selling an online service we've got a u again a $122,000 annual contract it's renewable in year two for $112,000 we've got $10,000 in training uh at $2,000 a day which is also uh vsoe so we've got a total uh transaction fee of $222,000 and the question we're going to have need to ask is does the training have separate value uh from the monthly service fee and there's you know could be a variety of opinions on this somewhat subjective area but it could definitely have a separate value particularly if if similar training is sold by another vendor we would get to stand alone value and therefore account for them as separate elements uh in this case both the elements uh have vsoe so we're going to account for them at their contractual amounts the $1,000 monthly service fee we recognize that ratably over over the year and we defer uh the balance of that and and recognize it monthly the training we'd recognize when it was completed assuming that the training has a standalone value and in this case there wouldn't be any difference between the two methods because both elements have the soe um if there was a discount present in the deal then obviously the relative selling price between the two elements would would change when the revenue was allocated and now we're going to look at example four uh if we have customization Services if we've got a large uh uh Cloud application with $100,000 uh subscription fee for the for each year it's renewable in year two for uh $100,000 so we do have vsoe and we have $50,000 in customization services that our provider we're going to ask do the customization Services have Standalone value I think typically we're going to find that they don't particularly if they are not offered by another uh vendor in that case we're going to uh take a look at them but typically customers customization Services have no Standalone value because the customer only gets value from the services when they use the subscription Services therefore the hosted services and the customization would be treated as one single element and we just take the total transaction fee and recognize that ratably over the subscription period um we could capitalize and expense the customization uh costs uh depending on our company policy election and whether we could uh adequately identify and capture them as uh incremental and direct costs uh for the the customization and now we're going to have our final uh polling question and take any questions that might have come up uh during the course of the transaction so Capri if you could um bring up our final polling question okay um final polling question is will you be evaluating Revenue management software for your company in uh the next three months the next six months next 12 months next 24 months or not applicable and we'll wait till this gets up to about uh 90% um so okay looks like we've got most people in Jeffrey I'll go ahead and close the polls okay and turn it back over I want to take a look at some of the questions um I bet one of them is about CP Credit so if you've answered the questions uh during the the webcast and uh have let us know that you want CPE credit we will send that out to you uh the slides will be available on the tin soft Resource Center uh starting tomorrow I believe and if you have any questions about any of those things you can also uh email us here's a question relating to Professional Services how long should Professional Services how long should Professional Services fees for initial implementation be recognized for SAS contracts well as we discussed if we have implementation or setup fees we're going to look at whether the estimated uh life of the customer and take them over that if it's longer than our initial contract period so if we have a one-year uh contract but we have a three-year estimated customer life then we'd be taking them over that three-year uh customer life if the longer of contractor customer life what do you do in the case when the customer life has been valued at 20 years in purchase accounting um typically deferred revenues wouldn't come over um if you've done a purchase accounting most of those deferrals become part of the price uh and purchase price allocation and don't uh enter Revenue after the uh the purchase so I have a question um if we have a subscription model but we allow the customer to it their site on their server um what would be the best way to evaluate this transaction well that would appear to me to be a a transaction where the customer is taking possession of the software it would depend on the licensing Arrangement but if they U had a license to that software independent from the vendor I would believe uh that if they took possession of the software even if it was for a term period that we would be under software accounting and not under um services or SAS type of accounting here's a good question um that relates to whether the fee is fixed and determinable what if the contract is is structured in a way where we don't know the total value of our Arrangement does that mean we can't recognize revenue for delivered element uh even if the undelivered elements have an estimated selling price well we would allocate Revenue to the individual elements of the arrangement if it was a SAS type Arrangement using the relative selling price but we would only allocate the known or determinable amount of Revenue so to the extent that um some of that Revenue was contingent or uncertain we wouldn't recognize that until the contingency was Revol resolved or the um the amount of the the revenue became fixed and determinable or certain okay here's another question question about um the estimated customer relationship so if you have Co customers that have been software licensed customers of you for a long period of time and you're mve to a SAS model um I don't think necessarily you'd look at what their software license relationship period was um because particularly if they were Perpetual licens that would be forever you'd look at what you expect your uh software as a service or your Cloud customer life to be and you'd probably expect a little more churn than in a a Perpetual licensed Customer because a Perpetual licensed customer has that upfront large investment that they want to recover over time whereas SAS uh or Cloud customer is paying on a monthly basis so they they've got a lower exit cost in the sense that they can just fire up another SAS solution so there's a question about uh what do we do if we don't have vsoe for the subscription well the if we're using the estimated selling price methodology we need to apply value to each element if we don't have vsoe then we're going to look to see whether there's a uh a thirdparty evidence of value if there's a customer that sells an identical uh service or a product we would use that if not we would need to come up with with an estimated selling price and there's a number of methodologies that uh people use companies use to come up with that whether it's a a vsoe light approach where maybe you didn't meet the vsoe requirements to have 85% of your uh transactions within plus or minus 10% maybe you're down more in the say 60 or 70% and plus or minus 20 that might be a good methodology you could use cost uh markup uh type of approach and also you can use um average discount if you've got different products or Services um that have consistent pricing you could use those what is your opinion on why the relative selling price method is better than what was used before well I don't know that it's better in all cases for um Hardware type companies it's definitely perceived as being better because they had a lot of upfront costs that were being expensed and the revenue was going over time and the uh residual method didn't seem to be uh capturing the essence of the economics of the transaction I think what a lot of people are finding is that uh creating and U using ESP for every element of a transaction is much more complicated and uh resource intensive than maybe it was anticipated and since you can't back into transactions like you used to do be able to do with residual method where you only had to have uh vsoe or value for the undelivered elements now that you have to have value for all the elements that's a much more uh wide ranging uh situation also it's um a more uh uh you know technology intensive relationship relation and a lot of companies current Erp systems and accounting systems don't have the ability to use um estimated selling price or the relative selling price method so that's a another uh thing that companies need to do they need to come up with uh systems uh to do that and that's one thing that ensoft can work with you to help uh provide so we're just about out of time today I want to thank everyone for attending again we'll capture the questions and if there's uh specific questions that you had that were not answered I'll try to uh your response and we'll get those up on the blog in the next couple of days just some resources that you might look to for additional information big four Revenue recognition guides and white papers all four of the big firms have websites with a variety of resources there the iacpa the fby and the eitf have you can get their pronouncements and use them for your guidance there's SEC filings if you're looking for how companies disclose their transactions and there's a webcast uh such as this one in the upcoming webcast that we'll be doing in May on software Revenue recognition and also just web searches of your your topic and your issue um if you have further uh questions or comments or if you're interested in Revenue recognition Consulting I can be reached at wner J sbcglobal.net and uh once again we do have the software Revenue recognition webcast coming up on Thursday May the 19th part 1 it's 9:00 a.m. to 12:30 and Wednesday May 25th uh part 2 9:00 a.m. to 12:30 again there is CPE credit for that it's PID per attendance and the res registration and details will be available soon uh by attending this webcast you're most likely in our uh email database and we be be receiving an email about that or you can also check back to the 10 Soft Resource Center uh in the next few weeks again we'll be covering uh General principles of Revenue recognition multiple element transactions vsoe license support and services issues and um we'll look at service and contract accounting software as of service implementation of the new EFS and discussion about where the fby is going with its Revenue recognition uh project so that concludes our webcast today thank you very much for joining us and hope you'll be be back with us at our next webcast and uh stay tuned for future webcasts so thanks for joining us today take care