How to Prepare for and Conduct a SaaS Financial Audit

FAQ

• What makes a SaaS financial audit different from a traditional financial audit?

  In a SaaS financial audit, the focus is on evaluating recurring subscription arrangements, contract durations, and billing methods such as usage-based pricing. Revenue recognition is reviewed in accordance with standards like ASC 606, which apply specifically to subscription and service businesses. Unlike audits of traditional businesses that handle physical inventory, SaaS financial reviews prioritize the documentation behind contracts, deferred revenue balances, unbilled receivables, and the delivery of digital services.

• What are the common reasons SaaS audits get delayed?

  The pace of SaaS audit reviews is often influenced by how customer contract records are managed and whether they align with general ledger entries. When documentation is maintained in a consistent manner and is accessible, auditors are able to perform their required procedures in accordance with review guidelines. The way records are organized has a direct impact on audit scheduling and process duration.

• How do auditors test ASC 606 compliance during a SaaS audit?

  During a SaaS audit, auditors review the organization’s revenue recognition policy and examine selected contract samples to verify how multiple performance obligations, such as software access, onboarding, and professional services, are outlined in agreements. They follow transactions from the initial order forms through the billing records to confirm how revenue is recorded in relation to the timing of service delivery. This approach ensures that the methods for revenue recognition align with ASC 606 standards throughout the audit process.

• What documents should we prepare before fieldwork begins?

  For audit fieldwork preparation, assemble executed Master Services Agreements (MSAs), Statements of Work (SOWs), issued invoices, payment receipts, monthly bank reconciliations, and a current deferred revenue waterfall schedule. Storing these records in a central system gives auditors access to the files required for random sampling review.

• How is deferred revenue treated on a SaaS balance sheet during an audit?

  The deferred revenue in the accounting statements of software as a service will be reflected under liabilities. The deferred revenue refers to those revenues that have been received or invoiced but services are still to be delivered. With regard to auditing the deferred revenue account, the auditor will determine whether there is monthly recording of the revenues against liabilities.

• How often should a SaaS company reconcile its financial accounts?

  Account reconciliation is usually done monthly by SaaS finance departments, instead of waiting for the year-end period. This is because of the constant need to record any changes made to formulas, accrued income, and transactions. The purpose of this approach is to have the accounting data match the audit requirements.

• Can we use manual spreadsheets to manage our audit preparation?

  Spreadsheets are commonly used by many new businesses when it comes to auditing and recording revenues. There might be neutral variances in the accounts of deferred revenues due to manual entries, and these are sometimes reported during the course of an audit. Automated billing systems and subscription sub-ledgers are connected with CRM and accounting systems as other means of record keeping and auditing.