Revenue Recognition – Myths and Implications for IT Contract Negotiations (part 2)

In the last edition of Technology Law review, we explained how the Sarbanes-Oxley Act and the accounting practices developed around revenue recognition in the US have had some unforeseen consequences.

Those negotiating contracts with US IT suppliers have experienced increased reluctance in relation to the acceptance of terms previously regarded as standard. In part 2 of this article, we examine some of the arguments and counter-arguments commonly proposed in contract negotiations and suggest some potential solutions.

Some suppliers claim that they cannot agree to acceptance criteria for deliverables where payment is linked to acceptance. Their justification is that they would be unable to recognise the revenue relating to those deliverables until the time the customer confirms final acceptance of the deliverables.