Microsoft yesterday announced that they have moved to a new accounting standards for revenue and for leases from July 1, 2017. Microsoft is moving to this new standard to simplify the communication of their financial results. Microsoft has been reporting both non-GAAP and GAAP revenue till now. With this change, they will report only GAAP revenue from the first quarter of our fiscal year ‘18.
Microsoft noted that revenue recognition for most areas of business including cloud services, hardware, enterprise services, and advertising revenue remains unchanged. Also, there is no change in Microsoft’s relationships with their customers, sales practices, our customer billing, or our cash flow. Only the Windows 10 OEM revenue will cause some materialistic impact in their reporting.
Since the launch of Windows 10 in July of 2015, we have been providing non-GAAP measures to exclude the impact from Windows 10 OEM revenue deferrals from our results. Going forward, the new revenue standard will enable us to eliminate that adjustment and report solely on a GAAP-basis. Another important change to our financials is the shift to upfront revenue recognition for the license component of our on-premises annuity contracts. This shift in recognition impacts our commercial business.
You can learn more about this change here.