Company: AWRE
Filing Date: 2025-03-13
Form Type: 10-K
Source: 0000950170-25-038714
Chunk: 99

Company: AWARE INC /MA/
Filing Date: 2025-03-13
Form: 10-K
Item: Item 8
Chunk 99
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 to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition 

As described in Note 2 to the financial statements, the Company recognizes revenue when a customer obtains control of promised goods and services. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these goods and services. The Company offers customers the ability to purchase combinations of software licenses, software maintenance, and related professional services together in one arrangement. The Company must determine which promises are distinct performance obligations and allocate the revenue to the performance obligations that are considered distinct based upon their relative Stand-alone Selling Price (SSP). Revenue allocated to software licenses is typically recognized at a point in time upon delivery and revenue allocated to the software maintenance and professional services is recognized over time, provided all other revenue recognition criteria are met. Management applies significant judgment in determining the revenue recognition for these contracts including the identification of and accounting for all performance obligations and the 

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calculation of the SSP for each identified performance obligation. The Company’s identification of performance obligations and estimate of SSP for each performance obligation identified within these customer contracts requires management to consider many factors, including:

•Determination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together, such as software maintenance or professional services that are sold with software licenses.

•Determination of stand-alone selling prices for each distinct performance obligation. 

Given these factors, the related audit effort in evaluating management’s judgments in identifying performance obligations and estimating SSP’s for these customer agreements was extensive and required a high degree of auditor judgment. 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. Our procedures related to the Company’s identification of performance obligations and estimation of SSP’s for these customer agreements included, among others:

•We evaluated management’s significant accounting policies related to these customer agreements for reasonableness.

•We obtained and read revenue contracts and evaluated the completeness of the performance obligations identified by management, and performed an evaluation of whether these performance obligations were distinct and capable of being distinct.

•We tested management’s process