VSOE and FMV

kmm · Joined: 26 Sep 2007 Posts: 3

Could someone spend a moment on the difference between VSOE and fair value and when one might apply versus the other? thx

delften · Joined: 26 Sep 2007 Posts: 3

97-2 is vendor specific objective evidence of fair value. There is one way to determine fair value of VSOE and it is the one prescribed by 97-2 for software arrangements using your historical sales data.

Fair value, which is looked at I think under 00-21 is one place where you need to separate elements that are not software related and don't fall under 97-2. If you have your own separate sales of something under 00-21, but there is another vendor that sells a similar enough product or service you can look to what they sell it for as evidence of fair value.

msmith1965 · Joined: 09 Oct 2007 Posts: 3

Vendor specific objective evidence (VSOE) of fair value is prescribed by SOP 97-2. It requires that in order to separate elements of a software arrangement, the company must have sufficient support for the price the elements are sold for in the market on a stand-alone basis. For VSOE, what other companies in your space charge for the same elements is not relevant, only what your company charges.

EITF 00-21 requires that fair value of each element be present in order to separate the various elements for revenue recgnition. EITF 00-21 allows a company to look to the marketplace to what other entities sell the elements for in developing fair market value.

jdhigginbotham · Joined: 29 Oct 2007 Posts: 1

In Feb 2007 the FASB defined 'fair value' in FAS 159 as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." The key points in this definition are 'orderly transaction' and 'market participants.' Thus fair value can't be established by looking at an exchange of assets in a bankruptcy or between 'related parties' as defined by the SEC. Fair value is established by multiple, non-related market participants in 'normal, orderly transactions.'

VSOE, on the other hand, is fair value as established by looking at the historical transactions of a specific vendor and does not consider what other vendors are charging for similar products.

revwreck · Joined: 30 Oct 2007 Posts: 3

Pls don't confuse SFAS 157 / SFAS 159 fair value methods and practices with those prescribed for SOP 97-2 / EITF 00-21 revenue transactions!! Revenue recognition requirements for fair value are not changed by SFAS 157/159 (scope exclusion par. 3, SFAS 157).

As noted by several others, vendor-specific objective evidence of fair value (VSOE) is a requirement for separation and allocation of revenue in arrangements governed by SOP 97-2 (par. 10). Objective & reliable evidence of fair value (similar level of objectivity, but not required to be vendor-specific) is the requirement in EITF 00-21 (par 9.b.) for separation & allocation.

bryantd · Joined: 01 Nov 2007 Posts: 1

Please note that if VSOE is available for a non-software deliverable, then you must use VSOE (rather than a competitor's price) as your fair value.

AMOORE · Joined: 18 Oct 2007 Posts: 2

Does anyone have a template they would mind sharing? We have a very complicated one that was developed years ago by PWC. I believe it can be simplified but would love to see what others in the software industry are using. Feel free to email it to me: amoore@plato.com.

Also, I am working on re-writing our revenue recognition policy. We sell perpetual licenses but our primary business is now SAS. I believe I need to incorporate SOP 97-2 as well as SAB 104 into our policy (basically when do we use VSOE versus when do we use fair value). If anyone has a mix of perpetual and subscription and has a policy template I could start with I would really love to see it!!