Revenue Recognition for Software IFRS vs. HGB
1. Scope: Differences in Software Revenue Recognition
- IFRS (International Financial Reporting Standards):
- IFRS provides comprehensive guidance on revenue recognition for all entities that prepare financial statements following IFRS.
- It is globally applicable and widely used by publicly listed companies.
- HGB (Handelsgesetzbuch – German Commercial Code):
- HGB specifically applies to German companies.
- It provides detailed rules for revenue recognition within the German legal framework.
2. Example: Software License Sales.
Imagine a software company that sells licenses for its product. Let’s explore how revenue recognition differs under IFRS and HGB:
- Under IFRS:
- Revenue recognition follows the principles outlined in IFRS 15 (Revenue from Contracts with Customers).
- The company recognizes revenue based on the transfer of control of the software license to the customer.
- Under HGB:
- The company adheres to specific rules laid out in German accounting standards.
- Revenue recognition may vary based on factors such as the type of license (e.g., perpetual vs. subscription) or the timing of delivery.
Keep in mind that these examples are simplified, and actual revenue recognition can be more intricate. Companies should carefully analyse their specific contracts and transactions to ensure compliance with the relevant accounting standards. For further information, please feel free to contact us at 3GAAPS.
