Company: ACIW
Filing Date: 2025-02-27
Form Type: 10-K
Source: 0000935036-25-000006
Chunk: 6

Company: ACI WORLDWIDE, INC.
Filing Date: 2025-02-27
Form: 10-K
Item: Item 15
Chunk 6
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 functional intellectual property (as it exists at the point in time at which the license is granted) for the duration of the contract term. Implementation, support, and other services are typically considered distinct performance obligations when sold with a software license. 

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Significant judgment is exercised by the Company in determining revenue recognition for these customer arrangements, and includes the following:

•Determination of the term of a software license arrangement when early termination rights are provided to the customer.

•Determination of whether products and/or services are considered distinct performance obligations that should be accounted for separately.

•Determination of whether the financing component in a software licensing arrangement is significant and, if so, the discount rate used in calculating the significant financing component.

•Assessment of whether the extension of payment terms in a software licensing arrangement results in variable consideration and, if so, the amount to be included in the transaction price.

•Determination of the standalone selling price for each performance obligation, the amount allocated to each performance obligation and whether it depicts the amount that the Company expects to be entitled to in exchange for the related product and/or service. As the selling prices of the Company’s software licenses are highly variable, the Company estimates standalone selling price of its software licenses using the residual approach when the software license is sold with other services and observable standalone selling prices exist for the other services.

Given these factors, the related audit effort in evaluating management’s judgments in determining revenue recognition for software license arrangements was extensive and required a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s accounting for software license arrangements included the following, among others:

•We tested the effectiveness of controls over the review of software license arrangements, including, among others, the determination of the contract term, identification of performance obligations, determination of significant financing component, estimation of variable consideration, and determination of standalone selling prices, including those controls over the determination that software license pricing is highly variable.

•We selected a sample of software license arrangements and performed the following, among others:

•Obtained contract source documents for each selection, including separate contracts or agreements that should be combined with the selected arrangement, and other documents that were part of the arrangement.

•Tested management’s determination of the contract term, identification of performance obligations, determination of significant financing component, estimation of variable consideration, and determination of standalone selling prices.

•Evaluated the reasonableness of the methodology and estimates used by management and the appropriateness of its revenue