The CA Thingy
SaaS Revenue Recognition for CAs: MRR, ARR & Global Compliance Simplified
June 23, 2025
63% of CAs make errors in SaaS revenue accounting. This guide breaks down MRR/ARR treatment, deferred revenue under ASC 606/Ind AS 115, and global compliance for Indian CA firms serving SaaS clients.
Core SaaS Metrics Demystified
1. MRR (Monthly Recurring Revenue)
- Recognition: Amortize over service period
- CA Pitfall: Don't book entire amount upfront
- Example: ₹1L annual plan = ₹8,333/month MRR
2. ARR (Annual Recurring Revenue)
- Key Rule: Not a GAAP metric - derive from MRR
- Reporting: Disclose as supplementary info
- Audit Red Flag: Recognizing ARR as lump sum
Ind AS 115 / ASC 606 Compliance Checklist
- Identify Performance Obligations
E.g., Software license + support = separate obligations
- Determine Transaction Price
Include discounts, coupons, and volume incentives
- Allocate Price to Obligations
Use standalone selling prices
- Recognize Revenue When Satisfied
Typically over time for SaaS
Deferred Revenue Accounting for SaaS
Prepaid Annual Plan
₹1,20,000 received Jan 1
Monthly Revenue: ₹10,000
Balance Sheet
Deferred Revenue: ₹90,000 (Apr 1)
3 months recognized
Tax Treatment
Recognize as per GST invoice date
May differ from books
Global Compliance Hotspots
| Country | Key Requirement | CA Watchlist |
|---|---|---|
| India | Ind AS 115 + GST on accrual | GST vs. book revenue timing |
| USA | ASC 606 + State taxes | Sales tax nexus rules |
| EU | IFRS 15 + VAT | Reverse charge mechanisms |
SaaS-Specific Audit Risks
- Over-recognition: Booking multi-year contracts upfront
- Add-ons: Mishandling mid-cycle upgrades
- Churn: Not adjusting for cancellations
- Currency: Forex fluctuations in global SaaS
Recommended Tech Stack for CAs
Revenue Recognition
Zuora RevPro
Chargebee RevRec
Indian Compliance
TallyPrime
Zoho Books
Multi-Country
Stripe Tax
Avalara