Revenue Recognition at Microsoft Corporation

Revenue Recognition at Microsoft Corporation

By
Anne Beyer, Jaclyn Foroughi
2018|Case No.A234| Length 19 pgs.

In July 2017, software and device giant Microsoft [NasdaqGS: MSFT] adopted a new accounting standard that market observers described as one of “the most historic accounting changes to hit the U.S. capital markets in decades.” Twelve years in the making, the Financial Accounting Standards Board’s (FASB) 2014-09 Revenue from Contracts with Customers (Topic 606) laid out new rules for making revenue recognition consistent across industries, both in the U.S. and internationally through its International Financial Reporting Standards (IFRS) equivalent, IFRS 15.

While implementation of the standard, beginning in fiscal year 2018, would have an impact on many industries, perhaps the greatest effect would be felt by software companies, where “multiple-element arrangements” that bundled software licenses, upgrades, and post-contract customer support or services were ubiquitous.

This case focuses on helping students understand the updated standards for revenue recognition, both in the U.S. through Financial Accounting Standards Board’s (FASB) 2014-09 Revenue from Contracts with Customers (Topic 606), and internationally through the International Financial Reporting Standards (IFRS) equivalent, IFRS 15.

Learning Objective

Students are introduced to the concept of revenue recognition accounting and how to adjust all financial statements to reflect a different timing of when revenues are recognized.

This material is available for download by current Stanford GSB students, faculty, and staff, as well as Stanford GSB alumni. For inquiries, contact the Case Writing Office.