What is vendor-specific objective evidence (VSOE)?

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Software vendors typically sell their products and services in bundled contracts that cover the software license, installation services, training, and post-sale customer support.

Accountants and auditors require so-called vendor-specific objective evidence (VSOE) of the fair value of the contract’s components so that it can properly determine the value of individual items and recognize partial revenue before the entire contract is fulfilled. If the vendor cannot establish VSOE of fair value, it may have to defer recognizing all revenue until the last element in the contract is delivered.

The purpose of this requirement is prevent companies from reporting revenue before it is actually earned.