The Ultimate Revenue Policy
Every Finance Team Should Be Using

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Auditors have a mandate and responsibility to thoroughly investigate how companies account for revenue. Many companies are left to wonder … is there anything I can do to make the revenue portion of my audit less painful? Thankfully, yes: Write and enforce a great revenue policy.

Revenue Recognition Policy 101

What’s a Revenue Recognition Policy? 

A revenue recognition policy is a single document which summarizes your processes and methodologies used to recognize revenue. 

Why do I need one? 

Your revenue recognition policy is where you establish the rules that govern the consistent application of the ASC 606 framework at your company. 

The ASC 606 framework is a set of requirements each company must satisfy before they can recognize revenue. These requirements are set forth by the Financial Accounting Standards Board (“FASB” for short).

Why should I care? 

In short, you should care about having a solid revenue recognition policy because your auditors care. According to a study conducted by The CPA Journal, revenue recognition issues were the leading cause of financial statement fraud in 11 out of 15 years from 2000 to 2014. 

Because revenue recognition issues are the leading cause of financial misstatements, auditors require lots of documentation to ensure accuracy. Having a solid revenue recognition policy in place saves you from the wild goose chase of producing contract after contract to account for specific line items in your financial statements.  

So, why doesn’t everyone have a revenue recognition policy?

Turns out, they’re not super easy to put together. Companies pay thousands of dollars to have revenue recognition policies written for them, but here at SaaSOptics, we’ve done the heavy lifting for you.  

In our downloadable revenue recognition policy, we lay out a totally customizable revenue recognition policy for you to adapt for your business. 

Because there are 5 main principles of ASC 606, our revenue recognition policy contains 5 sections in which there are three subsections. The first lays out guidance for writing that portion of the revenue recognition policy. The second is a set of considerations that apply to our hypothetical SaaS business, and the third is an actual sample revenue policy for you to adapt as needed for your own revenue recognition policy.

 

The following is a preview of our revenue recognition policy’s table of contents: 

Revenue Recognition Policy Table of Contents:

Scope and Purpose 6

Policy Summary 7

Revenue Analysis 9

Step 1: Identify the Contract 9

Guidance 9

Considerations 11

Policy 11

Step 2: Identify the Performance Obligations 13

Guidance 13

Considerations 15

Explicit vs. implicit promises 15

Single vs. combined performance obligations 16

Specified upgrades and product roadmaps 16

Policy 17

Step 3: Determine the Transaction Price 18

Guidance 18

Considerations 21

Policy 22

Step 4: Allocate the Transaction Price 24

Guidance 24

Considerations 26

Policy 28

Step 5: Recognize Revenue 28

Guidance 28

Considerations 30

Policy 31

Appendix A – Resources (delete before finalizing) 32

"You could literally charge $10K - $20K for this. That's how valuable this was to our finance team and business. I can't believe you're giving it away for free."

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