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Tables of Contents for Software Industry Accounting
Chapter/Section Title
Page #
Page Count
Acknowledgments
xxviii
Preface
xxx
About the Cd-Rom
xxxi
General Industry Perspective
1
1
Edward S. Wittman
A General Industry perpective
1
1
Roots of the Computer Software Industry
2
2
Origins of the Computer Industry
2
1
Early Computers and Software Technology
2
1
Acceleration of Computer and Software Development
3
1
Splitting Off of the Software Industry
3
1
Software Industry Today
4
4
Growing Importance of the Software Industry
4
1
Economic Impact of the Software Industry
5
1
Role of the Internet
6
1
Intranets: Ease of the Internet Brought In-House
7
1
Mainframe Market
8
1
Key Terms used in the Software Industry
8
1
Software Development Process
9
6
Distiguishing Between Research and Development Activities
9
1
Six Phases of the Software Development Process
9
6
Marketing and Distribution of Software Products
15
How Software Companies Derive Revenues
15
1
Software Licenses
15
1
Channels of Distribution for Software Licenses
15
2
Postcontract Customer Support (Maintenance)
17
1
Providing Software in Projects that Combine Software with Hardware or Services or Both
17
1
Providing Software Development Services
18
1
Providing Services that Accompany Software Products
18
1
Providing Services Using Software
18
Software Industry Glossary of Terms
1
1
The AICPA Task Force on Accounting for the Development and Sale of Computer Software
1
1
Francis J. O'Brien
Introduction
1
2
Historical Perspective
1
1
FASB Statement No.2
1
1
ADAPSO Exposure Draft
2
1
Formation of the AICPA Task Force
3
1
Capitalization of Software Development Costs
3
4
Acceleration of Addressing the Capitalization Issue
3
1
SEC Moratorium on Capitalization of Software Development Costs
4
1
Issues Paper on Capitalization of Software Development Costs
4
1
Exposure Draft of the FASB Statement
5
1
Response to the FASB Exposure Draft
5
1
Issuance of FASB Statement No. 86
6
1
Retrospective
6
1
Software Revenue Recognition
7
6
Issues Paper on Software Revenue Recognition
7
1
FASB Reaction to the Issues Paper
8
1
Preparation of Statement of Position No. 91-1
9
1
FASB Review of the Draft Proposed SOP
10
1
Exposure Draft of the Software Revenue SOP
11
1
Issuance of SOP 91-1 and Effective Date
12
1
Further Guidance on Revenue Recognition
13
1
Project to Develop Further Revenue Recognition Guidance
13
1
Industry Changes
13
1
Broad Implementation Issues
14
1
Issues Addressed
14
17
Delivery Issues
15
7
Contract Accounting Issues
22
4
Service Transactions issues
26
2
Postcontract Customer Support Issues
28
3
Transition
31
1
Conclusion
31
The Securities and Exchange Commission
1
1
Organization of the Securities and Exchange Commission
1
2
Capitalization of Software Development Costs
3
2
Historical Perspective
3
1
SEC Views on Implementation of FASB Statement No. 86
4
1
Amortization of Capitalized Software Costs
4
1
Revenue Recognition
5
10
SEC Staff Accounting Bulletin No. 101 (``SAB 101''): Revenue Recognition in Financial Statements
5
2
SEC Views on Certain Revenue Matters
7
8
Other SEC Financial Reporting Matters
15
8
Business Combinations
15
3
Income Statement Captions
18
1
Management's Discussion and Analysis
18
1
Quarterly Adjustments
19
1
Initial Public Offerings
20
2
Foreign Marketing Entities
22
1
SEC Comment Letters and Enforcement Actions
23
3
Comment Letters
23
1
Enforcement Actions
24
2
Conclusion
26
SEC Accounting and Auditing Enforcement Release No. 271
1
2
SEC Accounting and Auditing Enforcement Release No. 351
3
2
SEC Accounting and Auditing Enforcement Release No. 494
5
2
SEC Accounting and Auditing Enforcement Release No. 495
7
2
SEC Accounting and Auditing Enforcement Release No. 730
9
Software Revenue Recognition
1
1
Donald P. Keller
Dean A. Martinez
Background
1
2
General
1
1
History of the Development of Current Revenue Recogntion Rules for the Software Industry
2
1
Scope and Applicability
3
2
General
3
1
Applicability Where Software Is Not Incidental
4
1
Nonapplicability Where Software Is Incidental
4
1
Basic Principles
5
21
General
5
1
Persuasive Evidence of an Arrangement
5
1
Delivery
6
4
Fixed or Determinable Fees and Collectibility
10
11
Cancellation Privileges
21
2
Fiscal Funding Clauses
23
1
Forfeiture or Refund Clauses
23
2
Customer Acceptance Clauses
25
1
Multiple-Element Arrangements
26
15
General
26
1
Combining Closely Related Contracts
27
1
Revenue Recognition for Multiple-Element Arrangements
27
1
Vendor Specific Objective Evidence of Fair Value
28
4
Upgrades
32
4
Additional Products
36
5
Other Services in a Multiple-Element Arrangement
41
1
Postcontract Customer Support
41
10
General
41
2
Overall Guidelines for PCS Revenue Recognition
43
1
Determining VSOE for PCS Arrangements
43
1
Explicit and Implied PCS Arrangements
44
2
PCS Is the Only Undelivered Element and VSOE Does Not Exist
46
1
PCS Revenue Recognizable with Initial License Fee
46
1
PCS Provided During Warranty Period at No Additional Charge
47
1
Implied PCS Arrangements for Correction of Errors Necessary to Maintain Compliance with Published Specifications During Warranty Period
48
1
PCS Bundled with Contract Accounting Arrangement
48
1
PCS Bundled with Term Licenses
49
2
Discounts
51
8
General
51
1
Determining Whether a Discount is Significant
51
1
Multiple-Element Arrangements with VSOE Only for Undelivered Elements
52
1
Multiple-Element Arrangements Involving an Upgrade Right
53
1
Discounts on Future Products
54
2
Discounts on Additional Copies of Delivered Software
56
1
Discounts in PCS Arrangements
56
3
Exchange and Return Rights
59
12
General
59
2
Returns
61
5
Exchange and Platform-Transfer Rights
66
5
Decision Chart on Accounting for Exchanges and Returns
71
1
Software Licensed to Resellers
71
10
General
71
1
Persuasive Evidence of an Arrangements
72
1
Delivery
72
1
Fixed or Determinable Fees and Collectibility
72
4
Rights of Return or Exchange and Price Protection
76
2
Implied PCS Arrangements
78
3
Nonrefundable Prepaid Royalties
81
1
Funded Development Arrangements
81
2
Accounting for Services
83
5
General
83
1
Determining if Services Can Be Accounted for Separately
84
2
Impact of PCS and Other Services
86
1
Accounting for Installation Services
87
1
Miscellaneous Revenue Matters
88
Marketing and Promotional
88
1
Barter Transactions
89
Comparison of Old and New GAAP
1
1
Contracts for Software Combined with Hardware or Services or Both
1
1
James N. Brendel
Methods of Contract Accounting
1
2
Percentage-of-completion Method and the Completed-Contract Method
1
1
Circumstances in Which to Use the Percentage-of-Completion Method
2
1
Circumstances in Which to Use the Completed-Contract Method
2
1
Application of the Percentage-of-Completion Method
3
18
Key Aspects of Applying Percentage-of-Completion Method
3
1
Segmentation
3
4
Single-Cost-Center Contracts
7
2
Measuring Progress-to-Completion
9
1
Cost-to-Cost Measures of Progress-to-Completion
9
1
Input Hours-to-Hours Measures of Progress-to-Completion
10
2
Output Value-Added Measures
12
6
Output Value-Added Measures for Core Software
18
1
Separately Enforceable Obligation for Software Accounted for Using Value-Added Output Measures and Other Implementation Questions
18
1
Income Determination: Revenue Elements
19
2
Revised Estimates
21
1
Precontract Costs
21
Capitalization, Amortization, and Net Realizable Value Testing of Software Costs
1
1
Paul Munter
Capitalization
1
14
Broad Applicability of FASB Statement No. 86
1
1
Software Products
1
2
Computer Software Research and Development Costs
3
1
Determination of Technological Feasibility in General
4
1
Determination of Technological Feasibility If a Detail Program Design Is Used
4
2
Technological Feasibility If a Detail Program Design Is Not Prepared
6
1
Projects That Do Not Precisely Employ Either a Detail Program Design or a Working Model Approach
7
1
Determination of Market Feasibility
7
1
Aggregating the Direct Labor Component
8
1
Overhead Rates
9
1
Other Direct Costs
9
3
Capitalization of Interest
12
1
Recapitulation of Costs to Be Capitalized
12
1
Availability for General Market Release-Cessation of Capitalization
12
1
Enhancements
13
1
Capitalization of Funded Development Costs
14
1
Amortization
15
3
Amortization in General
15
1
Straight-Line Amortization
15
1
Revenue-Based Amortization
16
1
Combined Work Sheet for Straight-Line and Revenue-Based Amortization
16
1
Amortization of Enhanced Products
16
2
Reporting Amortization in Interim Periuods
18
1
Net Realizable Value Testing
18
8
Net Realizable Value Testing in General
18
1
Estimating the Future Revenue Stream
19
1
Estimating Costs of Disposal and Costs to Complete
19
1
Effects of Assuming Enhancement and Not Assuming Enhancements in Revenue and Cost Projections
20
1
Work Sheet for Net Realizable Value Testing
21
1
Recording a Net Realizable Value Writedown
21
1
Net Realizable Value Writedown Establishing New Cost Basis
21
5
Net Realizable Value Writedowns and Capitalization of Additional Development Costs
26
1
Software Acquired in a Purchase Business Combination
26
3
General
26
1
Discount Rates
26
1
Allocation of Acquisition Cost to Incomplete Research and Development
27
2
Cost of Software Developed or Obtained for Internal Use
29
General
29
2
Two Standards for Software Capitalization--Which to Use?
31
1
Stages of an Internal-Use Software Project
32
1
Preliminary Project Stage
32
1
Application Development Stage
33
1
Post-Implemention/Operation Stage
34
2
Reengineering
36
1
Y2K, ISO 9000, and Similar Costs
36
Questionnaire for Compling Information to Support Capitalization of Software Development Costs
1
6
Software Release Request
7
2
Statement of Financial Accounting Standards, No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Markted
9
8
Q&As on FASB Statement No. 86
17
Auditing Financial Statements of Software Companies
1
1
James N. Brendel
General Considerations: Characteristics of the Industry
1
1
Auditing Capitalized Software Development Costs
2
4
Nature of Assets
2
1
Assessing Significance of Capitalized Software Development Costs
2
1
General Approach to Auditing
3
1
Auditing Determination of Technological Feasibility
3
1
Auditing Determination of Availability for General Market Release
4
1
Auditing Accumulation of Capitalized Hours, Direct Costs, and Overhead Rates
4
1
Auditing Amortization and Net Realizable Value
5
1
Representation Letter
5
1
Use of a Technical Specialist
6
1
Auditing Software Revenue
6
2
Unique Aspects of Auditing Software Revenue
6
1
Auditing Software License Revenue
7
1
Auditing Contract Accounting Revenues and Costs
7
1
Auditing Postcontract Customer Support Revenue
8
1
Going Concern Considerations
8
3
Industry and Company Characteristics
8
1
Going Concern Audit Procedures
9
2
Audit Risk Alerts
11
1
AICPA ``Audit Issues in Revenue Recognition''
11
1
Conclusion: A Challenging Industry for Auditors
11
Audit Program for Audits of Software Companies
1
6
Checklist for Documentation of Technological Feasibility
7
6
High-Technology Industry Developments---2000/01
13
46
Audit Issues in Revenue Recognition
59
Accounting for Research and Development Arrangements
1
1
General
1
1
Research and Development Arrangements in Which Funds Are Provided by Others
1
1
Accounting Principles for Research and Development Arrangements
2
1
FASB Statement No. 68
2
1
Arrangements Covered by FASB Statement No. 68
3
1
Determining Whether a Liability to Repay Exists
3
2
Explicit Contractual Liability to Repay
3
1
Substantive Liability to Repay
4
1
Related Parties in Research and Development Arrangements
5
1
Accounting If There Is a Liability to Repay
5
2
Accounting If There Is No Liability to Repay
7
1
Liability to Repay a Portion of Funds Provided
8
1
Special Considerations for Issuance of Securities in Connection with a Research and Development Arrangement
9
2
General
9
1
If There Is an Obligation to Repay
9
1
If There Is No Obligation to Repay
10
1
Financial Reporting for Research and Development Arrangements
11
2
If There Is an Obligation to Repay
11
1
If There Is an Obligation to Repay But No Repayment Is Made
12
1
Contracts to Perform Research and Development for Others
13
1
Illustration of Accounting for a Research and Development Arrangement with a Liability to Repay
13
Assumptions
13
1
Accounting by the Partnership
14
1
Accounting by ABC Software Company
14
Statement of Financial Accounting Standards No. 68
1
6
SEC Staff Accounting Bulletin No. 63
7
Taxation of Computer Software Companies
1
1
James R. Shanahan, Jr.
Mark B. Singer
Katrina L. Salem
Brad I. Silver
Alicia M. Wilkinson
Introduction
1
1
Taxation of Revenue
1
8
Computation of Taxable Income
1
1
Brief Overview of Methods of Accounting
2
1
Revenue Recognition: In General
3
1
Tax Ramifications of Implementations of SOP 97-2: In General
4
1
Postcontract Customer Support
4
3
Characterization of Revenue from Software Transactions
7
2
Tax Treatment of Research and Development Costs
9
11
In General
9
1
Software-Specific Rules
10
1
Limitations on Revenue Procedure 69-21
11
1
Capitalization of Software Development Costs
12
1
IRS Attempts to Define Deductible Software Development Costs
13
4
Deductible Contract Research Costs
17
1
Research Credit
17
3
Tax Treatment of Costs to Acquire Software
20
2
Acquisitions of Less than All Substantial Rights
20
1
Acquisitions Involving All Substantial Rights
21
1
Payments for the Right to Use Software
22
1
Tax Planning for Foreign Operations
22
5
Introduction
22
1
Foreign Withholding Taxes
23
1
Foreign Sales Corporations
24
1
Establishing a Presence Overseas
25
1
U.S. Tax Considerations of the Foreign Operation
26
1
Internet Taxation
27
1
Conclusion
27
Legal Aspects of Software
1
David A. Weinstein
General
1
1
Copyrights
1
4
Nature of a Copyright
1
1
Control Given by a Copyright
2
1
Material that Can Be Copyrighted
2
1
Protection that a Copyright Does Not Provide
3
1
Obtaining a Copyright
3
1
Term of a Copyright
4
1
Registered Copyrights
4
1
Copyright Notice
4
1
Copyright Protection in Foreign Countries
5
1
Copyright Infringement
5
1
Trademarks
5
9
General
5
1
Nature of a Trademark
6
1
Legal Rights to Trademarks in the United States
6
1
Geographic Scope of Exclusive Rights
6
1
Appropriate Items for Trademarks in the United States
7
1
Acquiring Ownership, Beginning, and Duration
8
1
Ownership
8
1
Federal Registration
9
1
Trademarks that Cannot Be Federally Registered
9
1
Requirements of Filing for Federal Registration
10
1
Registration Approval, Opposition, and Cancellation
11
1
What to Do Before Filing Application for Federal Registration
11
1
Rights to Prevent Others from Using a Trademark
11
1
Registered Trademarks
11
1
Advantages of Registering a Trademark
12
1
Timing of Eligibility for Registration
12
1
Use of a Particular Symbol with a Trademark
12
1
Trademark Infringement
12
1
Preventing Imports that Infringe
13
1
Trademark Protection in Foreign Countries
13
1
Guidelines for Usage of a Trademark
13
1
Patents
14
3
General
14
1
Nature of a Patent
14
1
Inventions that Can Be Patented
14
1
Obtaining a Patent
15
1
Ownership of a Patent
15
1
Term of Patent Protection
16
1
Patent Notice
16
1
Patent Infringement
16
1
Patent Protection in Foreign Countries
16
1
Protection of Trade Secrets
17
3
Overview
17
1
Nature of a Trade Secret
17
1
Eligibility for Trade Secret Protection
17
1
Nature of Trade Secret Protection
18
1
Obtaining Trade Secret Protection
18
1
Term of Trade Secret Protection
19
1
Unvailability of Trade Secret Protection for Information
19
1
Use of Notice or Agreement to Protect Information
19
1
Trade Secret Violations
19
1
Software Agreements
20
4
General
20
1
Software Development Agreements
20
1
License Agreements
21
1
Distribution Agreement
22
1
Maintenance Agreements
22
1
Software Escrow Agreements
23
1
Software Liability Issues
24
1
General
24
1
Warranties and Representations
24
1
Infringement
24
1
Remedies and Penalties
25
1
Reverse Engineering
25
General
25
1
Copyright Exception
26
1
Trade Secret Exception
26
1
Semiconductor Chip Exception
26
1
Contractual Exception
27
Illustrative Software License Agreement
1
8
Illustrative Shrink-Wrap Software License Agreement
9
4
Illustrative Software Escrow Agreement
13
6
Illustrative Software Maintenance Agreement
19
6
Illustrative Software Development Agreement
25
Software Industry Associations
1
1
Douglas C. Jerger
Industry Associations in General
1
2
Early History
1
1
Activities of Industry Associations
2
1
Software Industry Associations in General
3
1
Business Software Alliance (BSA)
4
2
Mission
4
1
Organizational Structure
4
1
Special Characteristics
5
1
Information about BSA
5
1
Information Technology Association of America (ITAA)
6
3
Mission
6
1
Organizational Structure
6
1
Special Characteristics
7
1
Information about ITAA
8
1
Software Committee of American Electronics Association (AEA)
9
2
Mission
9
1
Organizational Structure
9
1
Special Characteristics
9
1
Information about the Software Committee of AEA
10
1
Software and Information Industry Association (SIIA)
11
2
Mission
11
1
Organization Structure
11
1
Special Characteristics
12
1
Information about SPA
12
1
Regional Software Industry Associations
13
2
Start of Regionals
13
1
Notes on Selected Regionals
14
1
International Software Industry Associations
15
Responses to the International Nature of Software
15
1
Formation of the World Information Technology and Services Alliance (WITSA) and Current Activities
15
National Software Industry Associations
1
6
Regional Software Industry Associations
7
6
Members of World Information Technology and Services Alliance (WITSA)
13
Index
1