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ARTICLE · 02 MARCH 2015

New Revenue Recognition Guidance May Affect Software Company Valuations

Grant Thornton LLP
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Software companies are facing a transition to comply with the major accounting changes contained in the new revenue recognition guidance, Accounting Standards Update (ASU) 2014-09.

United StatesAccounting and Audit
David Dufendach
David Dufendach
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Software companies are facing a transition to comply with the major accounting changes contained in the new revenue recognition guidance, Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. But there is another important issue to consider: how these accounting changes will affect software company valuations.

How are valuations currently performed?

Accounting Standards Codification (ASC) 820, formerly Financial Accounting Standards (FAS) No. 157, provides valuation guidance. There are three approaches: market, income and cost. We will briefly discuss market and income approaches here because they are widely considered to be the most relevant in relation to the economic factors that determine value.

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