Post-contract support services

Post-contract support services – Most arrangements involving software also include promises for the right to receive services or unspecified upgrades and enhancements (or both) after the licence period begins. Generally, these services include telephone support and correction of errors (bug fixes or debugging), as well as unspecified upgrades or enhancements.

These activities are commonly known as post-contract support (PCS). Entities may have combined post-contract support with thePost-contract support services software as a single component by reference to IAS 18 IE 19 (which said: Fees from the development of customised software are recognised as revenue by reference to the stage of completion of the development, including completion of services provided for post-delivery service support). While other entities may have been separating post-contract support as a separate component from the software or even into multiple separate components.

Post-contract support is not a unique service contemplated or defined in IFRS 15. Software licences are commonly sold in a bundle that includes updates, also known as post-contract customer support. It is common that the software is a distinct ‘right to use’ licence, with revenue recognised at the point in time when it is transferred, while the post-contract support is delivered over time. However, there might be limited circumstances where the licence and updates are combined into a single performance obligation. Post-contract support services

If, in such limited cases, a licence and updates are combined, the outcome is generally a performance obligation that is delivered over time. Example 55 in IFRS 15 provides an illustration of this approach. There might be other performance obligations included as part the post-contract support package that require separate identification. However, they are often delivered over time and over a similar period as the combined service of software and updates; and, in practice, any allocation of transaction price would not have a significant effect on the timing and amount of revenue recognised. Post-contract support services

It is common for entities to only sell software and post-contract support as a package, or to only sell maintenance separately as a renewal. IFRS 15 only permits the use of a residual approach in limited circumstances. An entity might use the renewal price to determine the amount to be allocated to the software if certain criteria are met and the outcome faithfully represents the price if the software was sold separately. Post-contract support services

For example, assume that an entity sells licensed software and maintenance to a customer for C1.1m, and it regularly sells post-contract support for C1m and it licenses software on a stand-alone basis for between C0.5m and C5m. It would not be appropriate to apply the residual approach and allocate C0.1m to the software. This is because the residual approach results in a nominal allocation of selling price to the software licence, which does not faithfully reflect the stand-alone selling price. Post-contract support services


Post-contract support is an element included in virtually every software arrangement; it represents the right to receive services or unspecified product upgrades/enhancements, or both. PCS is often explicitly promised in the contract, but could also be implied as a result of the vendor’s past business practices. Post-contract support services

Consideration for post-contract support may be included in the license fee or separately priced. Post-contract support services

Software companies should assess individual services included in post-contract support to determine whether they are distinct. Generally, a software license and post-contract support will each be distinct, even when post-contract support is not optional, because the software remains functional without the post-contract support . In limited circumstances, however, a software license may not be distinct from the unspecified updates/upgrades if:

  1. those updates/upgrades are critical to the continued utility of the software, and
  2. without the unspecified updates or upgrades, the customer’s ability to benefit from the software would decline significantly.
Something else -   Corporate asset-backed security - How 2 best account it in IFRS 9 IAS 32

In such cases, the software license and the right to the unspecified product upgrades/enhancements are accounted for as a single performance obligation.

Reinstating inactive post-contract support

It is not uncommon for a customer to cancel or decline PCS renewal in a given period but subsequently decide to reinstate these services. At the time of reinstatement of inactive PCS, the customer typically receives the cumulative updates, upgrades, and enhancements released during the lapsed PCS periods, and the software vendor typically charges the customer for the lapsed periods. When PCS is reinstated, we believe a software company will generally recognize revenue immediately for the fee allocated to PCS provided during the lapsed period because control of the updates released during the lapsed PCS period transfers to the customer at reinstatement.

Post-contract support services

Post-contract support services

Annualreporting provides financial reporting narratives using IFRS keywords and terminology for free to students and others interested in financial reporting. The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. Use at your own risk. Annualreporting is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit or the local representative in your jurisdiction.

Something else -   Arrangements that do not meet the definition of a contract

Leave a comment