We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you!
Presentation is loading. Please wait.
Published bySylvia Rollison
Modified about 1 year ago
Copyright © 2012 NTT DATA, Inc. October, 2012 Offshore Revenue Determination Team NTT DATA Cloud Computing and Revenue Recognition
1Copyright © 2012 NTT DATA Corporation What is Cloud Computing?
Copyright © 2012 NTT DATA, Inc.2 Worldwide, revenue from “Cloud Computing” services is forecast to reach $240 billion in 2016, up from $77 billion in 2011, according to Visiongain. At year end 2016, more than 50 percent of Global 1000 companies will have stored customer-sensitive data in the public cloud, Gartner researchers also believe With Cloud Computing, users typically access IT infrastructure and software through the Internet on an "as needed" basis and pay only for the resources they use Cloud Computing provides more flexibility. Companies can more easily manage their IT infrastructure. For example, under a traditional IT model, if a company's needs change, it will likely take significant time to react (e.g., purchasing and deploying the equipment, upgrading the entire organization, etc.), coupled with the cost of upgrades. If the increased need for IT support was temporary, the company would be left with underused equipment and resources With Cloud Computing, capacity is available when the company needs it. Types of Arrangements in Cloud Computing a) Infrastructure as a service (IaaS) b) Platform as a service (PaaS) c) Software as a service (SaaS) Under IaaS, hardware and network resources are delivered by the cloud provider while the customer continues to control its own applications and operating systems With PaaS offerings, the cloud provider delivers the hardware, network, and operating systems, and the customer provides the application code to the cloud provider and runs the applications remotely For SaaS offerings, the cloud provider controls the hardware, network, operating system, and applications, and the customer accesses the applications through the Internet. Overview of Cloud Computing
3Copyright © 2012 NTT DATA Corporation Benefits and Concerns - switching to Cloud Computing
Copyright © 2012 NTT DATA, Inc.4 Quick implementation process:- Most vendors claim their applications can be up and running in a few minutes because there is no software to install. The implementation process also is easier for companies with multiple locations or remote workers to all have access to the same version of the application simultaneously Anytime access from anywhere with an Internet connection:- which again includes the ability for employees to work remotely Lower upfront costs:- Instead of paying a license fee and for annual maintenance, most models allow users to pay as they go (usually monthly, though some require annual contracts). They can pay per user and easily add more users. With Cloud Computing, capacity is available when the company needs it. This also tantamount to Economies of Scale to the Vendors providing Cloud Services because their systems are built to allow several customers to share infrastructure (both servers and storage areas) in a way that is transparent to users and does not allow those customers access to each other’s data. * However, it may not be an apple to apple test to conduct a cost comparison of doing business on-premise versus in the Cloud unless a company has moved all its business off-premise Other directly attributable benefits include:- - Reduced support costs - Realignment of IT resources to core activities - Easier and more frequent upgrades - Disaster Recovery and Backup capabilities Cloud Computing provides more flexibility. Companies can more easily manage their IT infrastructure. For example, under a traditional IT model, if a company's needs change, it will likely take significant time to react (e.g., purchasing and deploying the equipment, upgrading the entire organization, etc.), coupled with the cost of upgrades. If the increased need for IT support was temporary, the company would be left with underused equipment and resources. With Cloud Computing, capacity is available when the company needs it. Because Cloud offerings typically have usage-based, "pay as you go" pricing, the cost of an IT solution directly relates to the volume of a company's business, compared with a constrictive, fixed-cost model. Benefits of Cloud Computing
Copyright © 2012 NTT DATA, Inc.5 Safety and Integrity of the Data stored in the “sky”:- one of the biggest concerns expressed by those considering switching over to cloud applications is the safety of their data and their clients’ data. It’s a concern cloud vendors have been fighting to overcome for years. AICPA’s Role:- AICPA has developed Service Organization Controls Report (SOC) [formerly known as SAS 70 Report] to provide guidance on conducting highly specialized examination of a service organization’s internal control. There are three types of SOC reports:- - SOC 1: Report on Controls at a Service Organization Relevant to User Entities’ Internal Control over Financial Reporting - SOC 2: Report on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality and/or Privacy - SOC 3: SysTrust Reports. General use reports Vendors undergo stringent evaluation on its controls over the system or service it provides to user entities. The controls address the components of a system which include: Infrastructure. The physical and hardware components of a system (facilities, equipment and networks) Software. The programs and operating software of a system (systems, applications and utilities) People. The personnel involved in the operation and use of a system (developers, operators, users and managers) Procedures. The programmed and manual procedures involved in the operation of a system (automated and manual) Data. The information used and supported by a system (transaction streams, files, databases and tables). Security Concerns
Copyright © 2012 NTT DATA, Inc.6 Uptime and “five 9s”:- Another important consideration is unscheduled downtime and how easily customers can access their own data. There’s a concept of “five 9s” in the cloud world, which relates to “uptime,” or how often the system will be accessible by users—99.999% uptime, which amounts to 5.26 minutes of total unscheduled downtime per year. This does not include scheduled downtime, which many vendors say they set during weekends or overnight to limit interruptions to users This is often guaranteed as part of service-level agreements and, depending on the contracts, customers could be credited if the guaranteed performance is not met Of course, the cause of downtime can lie with the customers if they don’t have ample bandwidth or any Internet access, since access to data is driven by a company’s ability to access the Web. Operational Concerns
7Copyright © 2012 NTT DATA Corporation Revenue Recognition
Copyright © 2012 NTT DATA, Inc.8 As software is involved, the key accounting issue here is to determine whether the arrangement should be accounted for as a sale of software governed by the software revenue recognition guidance outlined in ASC 985-605 or as a service as per the guidance outlined in the Securities and Exchange Commission (“SEC”) materials of ASC 605-10-S99, read with Staff Accounting Bulletin (“SAB”) topic 104 In order to determine whether software guidance is applicable, one must determine whether a software element exists. A software element in a cloud computing arrangement is only present if both of the following criteria are met:- A) The customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty and, B) It is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software. If the above two criteria are not met the arrangement is considered a service contract. Generally, in Hosted Software and SaaS arrangements, the customer does not have the right to take possession of the software without significant penalty nor the ability to run the software on its own hardware or to contract with an unrelated vendor to host the software. Therefore, in these circumstances the sale is accounted for as a service transaction with revenue being recognized on a straight-line basis over the term of the agreement unless the terms of the agreement indicate that revenue is earned in a different pattern Current US GAAP Approach
Copyright © 2012 NTT DATA, Inc.9 Additional Services Being Sold along with the base cloud services One area of accounting complication for cloud offerings under existing GAAP is when additional services are sold along with the primary or base service (access to and/or use of the desired software functionality). These additional services typically are for setup and consulting. Under the current accounting framework, the existence of these additional services in the arrangement often results in a deferral of revenue. This occurs because revenue cannot be allocated because of the lack of fair value, the lack of stand-alone value, or the SEC guidance that upfront fees should be deferred over the life of the contract or the expected life of the customer relationship, whichever is longer. In these cases, fees for these additional services are recognized concurrently with the base cloud services. Current US GAAP Approach
Copyright © 2012 NTT DATA, Inc.10 Similar to current US GAAP, cloud offerings will generally be accounted for using a services model under the proposed standard. Under the proposed model, companies will need to determine if usage-based services will be uncertain consideration or options to purchase additional services The proposed model will require companies to make a determination of how their performance obligation is discharged, thereby establishing the recognition pattern. Similar to current US GAAP, most companies will need to determine whether the recognition is ratable over the term, as usage occurs, or some other pattern that best reflects the underlying economics of the transaction As noted previously, additional setup and consulting services often are sold along with the base cloud service. If the company can conclude that the additional services are separate performance obligations under the contract, then the proposed standard will require separation and allocation of the total arrangement consideration to those performance obligations based on estimates of their selling prices. Approach under Proposed Converged Standard
Copyright © 2012 NTT DATA, Inc.11 PwC Publication “A shift to cloud computing and its impact on revenue recognition” [http://www.pwc.com/us/en/increasing-it-effectiveness/assets/cloud-computing-revenue-paper.pdf] Journal of Accountancy: Cloud Computing: What Accountants Need to Know [http://www.journalofaccountancy.com/Issues/2010/Oct/20102519.htm] CPA Journal: Revenue Recognition for Cloud-Based Computing Arrangements [http://josefrashty.com/uploads/2/8/9/2/2892636/2010-11_rev-rec_tcpaj.pdf] References
Copyright © 2012 NTT DATA, Inc.12 Questions
Copyright © 2012 NTT DATA, Inc.13 Thank You!!
Duncan Fraiser, Adam Gambrell, Lisa Schalk, Emily Williams.
Dr. Hussein Al-Bahadili Faculty of Information Technology Petra University Securing E-Transaction 1/24.
Presentation to the Housing Technology Conference Tim Cowland- Senior Consultant 27 th February 2014 The Rise of the Housing Cloud.
3/12/2013Computer Engg, IIT(BHU)1 CLOUD COMPUTING-1.
Cloud Computing Project By:Jessica, Fadiah, and Bill.
Cloud computing is the use of computing resources (hardware and software) that are delivered as a service over the Internet. Cloud is the metaphor for.
Cloud Computing By Adam Balla & Wachiu Siu. What is cloud computing? In the simplest terms, cloud computing means storing and accessing data and programs.
Banking Clouds V International Youth Banking Forum.
Does "The Cloud" Fit Into Your Organization? Tom Horan Meridian IT Inc. VP, Strategic Markets (847)
Revenue Recognition - Multiple-Element Arrangements ASC Highlights.
VP Product Management Jim Rivera Platform as a Service Changing the Economics of Innovation.
Chapter-7 Introduction to Cloud Computing Cloud Computing.
SaaS, PaaS & TaaS By: Raza Usmani
Presented by Sujit Tilak. Evolution of Client/Server Architecture Clients & Server on different computer systems Local Area Network for Server and Client.
Cloud Computing 3. TECHNOLOGY GUIDE 3: Cloud Computing 2 Copyright John Wiley & Sons Canada.
Copyright 2016, Techarex Networks LLC. | | Call Toll-Free : Benefits Of Hosted QuickBooks For CPA Firms.
Effectively Explaining the Cloud to Your Colleagues.
REVENUE RECOGNITION Some Highlights and Examples from SAB 101.
Cloud Computing (101). Cloud Computing – Outline Definition of Cloud Computing Early days of “Cloud” Computing – 1960s – 1970s Developments that.
“ASC-HS” - The official hosting services for ARCHIBUS, the #1 Software Solution for Real Estate, Infrastructure, and Facilities Management in the World.
Introduction to Cloud Computing Session 1. Objectives Describe the evolution of cloud computing. Explain the advantages of cloud computing. State.
Cloud Computing All Copyrights reserved to Talal Abu-Ghazaleh Organization
Cloud Computing. 2 A division of Konica Minolta Business Solutions USA Inc. What is Cloud Computing? A model for enabling convenient, on-demand network.
Managing Software Assets. Managing Software Assets Software costs represent one of the largest information technology expenditures in most firms. Amounting.
Introduction To Cloud Computing By Diptee Chikmurge And Minakshi Vharkate Asst.Professor MIT AOE Alandi(D),Pune.
Cloud Computing Characteristics A service provided by large internet-based specialised data centres that offers storage, processing and computer resources.
The Cloud: Demystified Neil Cattermull Frontier Technology.
VAP What is a Virtual Application ? A virtual application is an application that has been optimized to run on virtual infrastructure. The application software.
Coach Transportation Ticketing System
Data processing is done on one or on a cluster of computers located in a central data processing facility Users transmit data to the centralized data.
Office 365 is cloud- based productivity, hosted by Microsoft. Business-class Gain large, 50GB mailboxes that can send messages up to 25MB in size,
Microsoft Services Provider License Program. 2 Agenda Program Overview What is a Services Provider? What are Software Services? What is SPLA? Is SPLA.
Revenue Recognition Intermediate Accounting,17E Stice | Stice | Skousen © 2010 Cengage Learning PowerPoint presented by: Douglas Cloud Professor Emeritus.
Cloud Models – Iaas, Paas, SaaS, Chapter- 7 Introduction of cloud computing.
Enterprise Solutions Chapter 8 – Cloud Computing.
Empowering Business in Real Time. © Copyright 2009, OSIsoft Inc. All rights Reserved. Virtualization and HA PI Systems: Three strategies to keep your PI.
Which server is right for you? Get in Contact with us
ERP. What is ERP? ERP stands for: Enterprise Resource Planning systems This is what it does: attempts to integrate all data and processes of an organization.
6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC1 ASU , ASC 606 Revenue from Contracts with Customers and Proposed ASU, Deferral of Effective.
1 Introduction to Cloud Computing Jian Tang 01/19/2012.
…delivery models. “ASC-HS” - The official hosting services for ARCHIBUS, the number one Software Solution for Real Estate, Infrastructure, and Facilities.
Built atop SharePoint Online, WorkPoint 365 Offers a Project and Case Management Solution to Boost Business Productivity and Deliver Governance OFFICE.
Page 1 SaaS – BUSINESS MODEL Debmalya Khan DEBMALYA KHAN.
Cloud Computing Cloud Computing Class-1. Introduction to Cloud Computing In cloud computing, the word cloud (also phrased as "the cloud") is used as a.
Travis, Stephanie, Alex. Cloud computing is a general term for anything that involves delivering hosted services over the Internet. These services.
Greg Pierce| Concerto Cloud Services Which Cloud is Right for Microsoft CRM?
1 Revenue Recognition An electronic presentation by Douglas Cloud by Douglas Cloud Pepperdine University Pepperdine University An electronic presentation.
Bay Ridge Security Consulting (BRSC) Cloud Computing.
Take your CMS to the cloud to lighten the load Brett Pollak Campus Web Office UC San Diego.
Ahmad Ismail. What is IAS 18 Revenue? Measurement of revenue Recognition of revenue Identification of transaction.
© 2017 SlidePlayer.com Inc. All rights reserved.