A software company grants a customer a two-year license to a proprietary anti-malware engine. The contract requires the company to keep actively developing and pushing threat-signature updates that the customer's license entitles it to receive throughout the term, and the customer's protection level rises and falls with those updates. Under IFRS 15's guidance on licences of intellectual property (paragraph B58), how should the company recognize the license revenue?
- At the point in time the license key is delivered, because delivery of a license key always triggers point-in-time recognition regardless of the surrounding facts
- Over the two-year term, but only because the contract's duration happens to exceed one year
- At the point in time the customer first actively uses the anti-malware engine, because usage rather than delivery is what triggers revenue for software licenses
- Over the two-year term, because the company's ongoing activities significantly affect the intellectual property the customer has rights to, and the customer is exposed to the positive or negative effects of those activities as they occur — the hallmark of a right to access
Why D? And why not the others?
Correct answer: D. Over the two-year term, because the company's ongoing activities significantly affect the intellectual property the customer has rights to, and the customer is exposed to the positive or negative effects of those activities as they occur — the hallmark of a right to access
IFRS 15 paragraph B58 sets out cumulative conditions under which a licence of intellectual property provides a right to access (recognized over time) rather than a right to use (recognized at a point in time): the contract requires, or the customer reasonably expects, that the entity will undertake activities that significantly affect the intellectual property to which the customer has rights; those activities expose the customer to positive or negative effects as they occur; and the activities do not themselves transfer a separate good or service. The scenario describes exactly this — ongoing signature updates that change the protection the customer receives — so revenue is recognized over the licence term. The option recognizing revenue on delivery of the license key ignores the B58 test entirely; delivery-triggered, point-in-time recognition is appropriate for a right-to-use licence that lacks these features, not automatically for every licence. The option tying the answer to contract duration is wrong because the over-time-versus-point-in-time distinction depends on the substance of the B58 criteria, not on how long the contract happens to run — a two-year right-to-use licence for static software with no required updates would still be recognized at a point in time. The option citing customer usage as the trigger invents a recognition basis IFRS 15 does not apply to licences; the standard's distinction turns on the access-versus-use test, not on when the customer happens to start using the software.
Source: IFRS 15 Revenue from Contracts with Customers, paragraph B58 (licences providing a right to access intellectual property)