Entities may provide maintenance services such as telephone support, bug fixes and unspecified upgrades or enhancements on software-enabled products. Revenue from maintenance services
Under earlier IFRS, these maintenance services were often treated as a single component (combined with other goods or services)1. These services are commonly referred to as post-contract support (PCS), and are not unique services contemplated or defined in IFRS 15. Revenue from maintenance services
As a result, entities must evaluate whether the individual services that comprise what is considered PCS under US GAAP are a separate performance obligations. For example, a technology entity may conclude that the promise to provide unspecified future upgrades and enhancements is a promised good or service in the contract and, therefore, is a revenue element.
The entity may also determine that bug fixes and telephone support are provided to ensure that the software is functioning as promised. As a result, those services are part of the assurance warranty coverage for the software and are not a revenue element (such warranties will be accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets).
However, other entities may conclude that the promise to provide telephone support and bug fixes contains both an assurance warranty (non-revenue element) and service-type warranty (revenue element), as discussed further in Warranties. Revenue from maintenance services Revenue from maintenance services
Furthermore, when the contract includes the promise to provide unspecified future upgrades and enhancements, the entity must determine the nature of that promise. For example, an entity may conclude that it has established a clear pattern of only providing one significant upgrade or enhancement per year, and therefore, the obligation to provide ‘future upgrades and enhancements’ is actually an obligation to provide this single upgrade or enhancement. Alternatively, if the entity has a history of providing multiple upgrades each year with no clear pattern of timing as to when those upgrades are provided, the entity may conclude that obligation represents more of a ’stand-ready’ obligation. Revenue from maintenance services