Generic VSOE Lesson

Everything you need to know about VSOE (but are afraid to ask) Paul Lamparski Finance Director, Global Revenues

VSOE ,[object Object],[object Object],[object Object],[object Object], | WWW.cfoconnect.COM For transaction that include multiple elements (i.e., license and PCS), the basis of revenue recognition relies on a justifiable allocation of revenue among the elements; Not subjective assessments nor contract prices

Objectives ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object], | WWW.cfoconnect.COM

Statement of Position 97-2 (SOP 97-2) “Software Revenue Recognition” ,[object Object],[object Object],[object Object],[object Object], | WWW.cfoconnect.COM

What is a Multiple-Element Arrangement? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Separate Contracts with One Customer – Multiple-Element Presumption ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

What is VSOE? Vendor-Specific Objective Evidence ,[object Object],[object Object],VSOE errors are a leading cause of restatements among public software companies

What VSOE is Not Vendor-Specific Objective Evidence is Not… ,[object Object],[object Object],[object Object],[object Object],[object Object],Stated prices for individual products and/or services in an arrangement with multiple deliverables should not be presumed to be representative of fair value. The best evidence of fair value is the price of a deliverable when it is regularly sold on a standalone basis.

Why is VSOE necessary? ,[object Object],[object Object],[object Object],[object Object],Today revenue recognition standards impose strict objectivity and verifiability conditions rather than rely on managers’ subjective assessments

How is VSOE determined? (part 1) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

How is VSOE determined? (part 2) ,[object Object],[object Object],[object Object],[object Object],[object Object]

Strict Objectivity and Verifiability vs. Subjective Assessments ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

A Practical Approach to VSOE ,[object Object],[object Object],[object Object],[object Object],[object Object]

A Practical Approach to VSOE Example of the Bell-Curve Approach ,[object Object],[object Object],[object Object], | WWW.cfoconnect.COM

A Practical Approach to VSOE Example of the Bell-Curve Approach ,[object Object], | WWW.cfoconnect.COM Scenario #1 Scenario #2 Median Median Values within +/- 15% of median Values within +/- 15% of median

Example of the Bell-Curve Approach Scenario #1 | WWW.cfoconnect.COM VSOE  94.8% within +/- 15% of Median

Example of the Bell-Curve Approach Scenario #2 | WWW.cfoconnect.COM VSOE Does Not Exist 79.8% within +/- 15% of Median

What is the Residual Method? ,[object Object],[object Object],[object Object],[object Object],[object Object]

Delivered vs. Undelivered ,[object Object],[object Object],[object Object],[object Object],[object Object],In practice, the relative fair value method is rarely used because software firms generally cannot establish VSOE of fair value for software licenses that are almost always sold in conjunction with PCS

Discounts and the Residual Method ,[object Object],[object Object],[object Object],License Fee PCS 1 year Total Price Stated in Agreement/Contract $ 40,000 $ 8,000 $ 48,000 Price Book Values 50,000 10,000 60,000 VSOE of Fair Value unknown 10,000 Revenue Allocation 38,000 10,000 48,000

VSOE a Practical Approach – An Overview ,[object Object],[object Object],[object Object],[object Object], | WWW.cfoconnect.COM

ARR / Subscriptions ,[object Object],[object Object],[object Object],[object Object],[object Object], | WWW.cfoconnect.COM

License Sales ,[object Object],[object Object],[object Object],[object Object], | WWW.cfoconnect.COM

Professional Services ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object], | WWW.cfoconnect.COM

Training ,[object Object],[object Object],[object Object],[object Object], | WWW.cfoconnect.COM

Bell-Curve Approach ,[object Object],[object Object],[object Object]

Segmenting and Stratifying ,[object Object],[object Object],[object Object],[object Object],[object Object]

Re-aggregating for Assessment ,[object Object],[object Object],[object Object],[object Object]

Impact of VSOE Failures ,[object Object],[object Object]

Impact of VSOE Failures Worst Case Scenario ,[object Object],[object Object],[object Object],[object Object], | WWW.cfoconnect.COM

Specified Upgrades ,[object Object],[object Object],[object Object],[object Object]

Product Roadmaps ,[object Object],[object Object],[object Object]

Review (slide 1 of 2) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object], | WWW.cfoconnect.COM

Review (slide 2 of 2) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object], | WWW.cfoconnect.COM

Generic VSOE Lesson

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (17)

Similar to Generic VSOE Lesson

Similar to Generic VSOE Lesson (20)

Generic VSOE Lesson