When the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) collaborated to create unified revenue recognition standards, their primary aim was to enhance consistency in financial reporting across industries and regions.
While the resulting standards, ASC 606 and IFRS 15, set a higher benchmark for transparency and comparability, they didn’t necessarily simplify the process.
It’s no wonder that even years after these standards became mandatory, many SaaS businesses continue to face challenges in achieving compliance.
Managing multi-element arrangements, performance obligations, and timing of revenue recognition becomes especially challenging when dealing with subscription models.
Failing to address these complexities can lead to compliance issues, financial misstatements, and inefficiencies that cost your business time and resources.
For finance teams in software companies, manual tracking and spreadsheet-based systems are no longer sufficient. The need for accurate, automated solutions is more critical than ever.
What Is ASC 606 and IFRS 15?
ASC 606 and IFRS 15 define a five-step process for recognising revenue:
- Identify the contract with the customer.
- Identify the performance obligations within the contract.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations.
- Recognise revenue as each performance obligation is satisfied.
For SaaS companies, this often means recognising revenue over the subscription period rather than all at once. It ensures that the timing of revenue recognition aligns with service delivery, giving a more accurate financial picture.
Challenges SaaS Businesses Face
Implementing these standards presents several pain points for finance teams:
- Complex Contracts: SaaS agreements often bundle multiple services, such as software subscriptions, maintenance, and customer support. Each of these performance obligations requires separate revenue recognition treatment.
- Variable Pricing: Pricing models with elements like tiered usage fees or discounts can complicate the calculation of the transaction price. These variables must be accounted for with precision.
- Deferred Revenue Management: SaaS companies typically receive payments in advance for services to be delivered over time. Properly tracking and recognising these payments to align with actual service delivery is critical.
How NetSuite from FinanSys Simplifies Compliance
NetSuite, implemented by FinanSys, provides an excellent platform to address these challenges, streamlining revenue recognition and compliance.
NetSuite Revenue Management streamlines revenue recognition by replacing manual spreadsheets and repetitive data entry with automated processes.
It allows users to define unique recognition rules for each product or service and associate them directly with individual line items in customer contracts.
Revenue is automatically recognised according to assigned schedules or milestones, ensuring consistent application of the revenue recognition principles mandated by ASC 606 and IFRS 15.
With these tasks automated, accounting teams can shift their focus to higher-value initiatives.
Additionally, the integration of revenue management with NetSuite’s financial tools simplifies and accelerates the monthly close process.
Our solution automates deferred revenue schedules, ensuring that revenue is recognised in the correct periods.
This minimises manual effort and reduces the risk of costly errors, helping you maintain compliance effortlessly.
Why Choose FinanSys?
While NetSuite is a powerful platform, FinanSys enhances its value with our expertise and customer-focused services:
- 25+ Years of Experience: With decades of financial management and ERP expertise, we understand the unique needs of SaaS businesses.
- End-to-End Support: From configuration and training to ongoing support, FinanSys provides a comprehensive solution that grows with your business.
- Exclusive Benefits: By subscribing to NetSuite through FinanSys, you gain access to UniFi, a powerful platform that enhances NetSuite with features like advanced reporting and reduced manual data entry—all at no additional cost. Learn more.
- Outstanding Retention Rate: Our 94% customer retention rate reflects our dedication to long-term success and satisfaction.
FinanSys brings unmatched expertise to the table. We can tailor NetSuite’s implementation to align with your unique subscription models, contract terms, and billing cycles.
By choosing FinanSys, you’ll benefit from personalised implementation and support from a team that knows you by name.
The Bottom Line
Compliance with ASC 606 and IFRS 15 is non-negotiable for SaaS businesses aiming to maintain accurate financial reporting and build investor trust.
NetSuite, implemented by FinanSys, offers the tools and solutions you need to navigate these complexities.
Ready to simplify compliance and optimise financial management?
Book a free consultation call to explore how NetSuite from FinanSys, together with UniFi, can transform your software company.