The appropriate measure of progress to apply to a stand-ready obligation that is satisfied over time might vary from one type of stand-ready obligation to another, and it generally would not be appropriate under Topic 606 to default to a straight-line revenue attribution method (for example, over the contract period) for any over time performance obligation if such an attribution would not depict the entity’s performance of satisfying the performance obligation. For example, a straight-line revenue attribution resulting from a time-based measure of progress over the contract period would not generally be reasonable in an annual snow removal services contract. Even though the contract term is one year, the pattern of benefit of those services to the customer, as well as the entity’s efforts to fulfill the contract, would generally not be even throughout the year because there would be no reasonable expectation of snowfall during the warm months of the year.

However, if an entity expects that the customer will receive and consume benefit from the entity’s promise, the nature of which is to stand ready to provide goods or services, equally throughout the contract period, then a straight-line revenue attribution resulting from a time-based measure of progress would be appropriate.

Example 18, Measuring Progress When Making Goods or Services Available, in Topic 606 concludes that the nature of the entity’s promise is to stand ready to provide the customer access to its health club facilities throughout the contract period. The example at least implicitly determines this on the basis that the customer will receive an unknown quantity of services under the contract (that is, the entity does not know how often or when the customer will use its health clubs or what amenities the customer will use when they do so). The example then concludes, relevant to this question, that because the customer will benefit from the entity’s service of making the health clubs available for the customer’s use evenly throughout the contract period, that a time-based measure of progress is appropriate.

The staff thinks each of the following examples are substantially similar to the health club example, and further illustrate the appropriate considerations:

While not necessarily as intuitive to some stakeholders as the examples in the paragraphs above, stand-ready obligations characterized by rights to unspecified software updates or upgrades are also often similar to those above in that the entity might not know how many updates or upgrades will become available for transfer to the customer, and it might not be able to predict what those updates or upgrades will be (that is, the entity may provide an upgrade with significantly enhanced functionality or it may only provide a minor update). Therefore, the nature of the entity’s promise is to stand ready to provide updates or upgrades when-and-if they become available. The customer benefits evenly throughout the contract period from the guarantee that any updates or upgrades developed by the entity during the period will be made available. As a result, a time-based measure of progress would generally be appropriate.

Topic 606 does not establish a bias between output- and input-based measures of progress. Therefore, the staff also thinks that in some cases, a time-based input measure of progress (as outlined in paragraph 606-10-55-20), rather than an output-based measure considering the expected pattern of benefit to the customer, might be appropriate. For example: