Revenue Recognition at TSA Inc.: A Roller Coaster Ride

Abstract

This case chronicles revenue recognition practices at TSA Inc. — which develops and sells software to facilitate electronic payments — over the six years from 1997 to 2002. TSA’s revenue recognition footnotes provide a rich setting in which to illustrate the complexities and judgments involved in revenue recognition. As revenue recognition guidance for the software industry became more detailed, TSA’s revenue recognition practices became more aggressive. Following the demise of Arthur Andersen in 2002, TSA’s incoming auditors re-evaluated its revenue recognition policies and required the company to restate its financial statements for three prior years. The case provides a real world situation with a variety of complex contracts through which students can improve their understanding of the 5-step revenue recognition process under ASC 606. The case and case questions are designed for use in Intermediate Accounting as well as in capstone accounting courses at both the undergraduate and graduate levels.

Keywords: Revenue Recognition, ASU 2014–09, SOP 97–2, ASC 606, Software License Fees