APPENDIX C: GAAP Compliance

Almost all mid-size and larger B2B SaaS companies strive to be US GAAP compliant if operating in the United States or IFRS 15 compliant if operating outside of the US (IFRS is a standard created by the International Accounting Standards Board and has been adopted by > 140 countries). These standards govern how revenues are recorded and reported on and the ASC606 component of US GAAP specifically deals with how revenue should be recognised.

Generally speaking, both ASC606 and IFRS 15 apply the following steps for determining when revenue can be recognised:

• Step 1: Identify contract(s) with customer. A contract creates enforceable rights and obligations.
• Step 2: Identify separate performance obligations in the contract(s).
• Step 3: Determine the transaction price.
• Step 4: Allocate the transaction price.
• Step 5: Recognise revenue when the performance obligation is satisfied.

When companies deploy relatively simple pricing models, revenue recognition should be straight forward. However, as pricing becomes more complex there are a few areas of complexity that make compliance difficult:

1. Bundles:- if underlying products are combined to form a 3rd product then companies are obligated to be able to show how the usage of the bundle and the pricing were applied across customers demonstrating, in particular, the bundle price was derived consistently from the stand-alone selling prices of each of the underlying products that made up the bundle.
2. Prepayments:- when an upfront payment is made for one or more services, it should only be recognised as the service is consumed. In usage-based scenarios this can lead to legitimately recognising revenue more aggressively inline with customer usage but it can be hard to administer. Metering and rating systems should make this straight forward.
3. Rollovers:- often customer prepayments reflect a commitment to consume a certain amount of a good or service but if the customer fails to reach the target, rather than lose the money they paid, companies often make it more palatable to the customer by including a rollover clause in the contract. When customer prepayments are allowed to be rolled over to another subsequent contract period, then this impacts how the prepayment can be recognised.

How does m3ter help?

m3ter contains a host of features that support the revenue recognition process allowing it to be automated between the metering and rating service and the ERP and many of these features are specifically US GAAP compliant.

Here is a summary: