IFRS 15 · Technology & SaaS

IFRS 15 Revenue Recognition for Technology & SaaS Companies

From SaaS subscriptions to complex enterprise software deals, master the judgement calls that define tech revenue recognition with our interactive step-by-step tool.

Step 1: Identify the Contract

IFRS 15.9–21All five criteria must be met for a contract to exist
a
Have the parties approved the contract and are committed to perform their respective obligations?
IFRS 15.9(a)
Approval can be written, oral, or implied by customary business practice. Commitment means the parties intend to enforce their respective rights. Consider whether there is a signed agreement, purchase order, or established pattern of dealing that evidences approval.
b
Can the entity identify each party's rights regarding the goods or services to be transferred?
IFRS 15.9(b)
The contract must establish enforceable rights for each party. This includes identifying what goods or services the entity will transfer and what the customer is entitled to receive. Even if terms are implicit or established by customary business practice, rights must be identifiable.
c
Can the entity identify the payment terms for the goods or services to be transferred?
IFRS 15.9(c)
Payment terms include the amount, timing, and form of consideration. The terms need not be explicitly stated if they can be determined from customary business practices or the contract's terms and conditions. Consider fixed prices, variable elements, milestone payments, and credit terms.
d
Does the contract have commercial substance — that is, the risk, timing, or amount of the entity's future cash flows is expected to change as a result of the contract?
IFRS 15.9(d)
A contract has commercial substance when it is expected to change the entity's future cash flows. This criterion prevents entities from recognising revenue on reciprocal exchanges of goods or services of similar nature and value (e.g., barter transactions between oil companies to fulfil demand in different locations). Most arm's-length commercial transactions have commercial substance.
e
Is it probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer?
IFRS 15.9(e)
Assess the customer's ability and intention to pay. Consider the customer's credit history, financial condition, collateral or guarantees, and the entity's past experience with similar classes of customers. 'Probable' means more likely than not under IFRS. If the entity offers a price concession, assess collectability on the reduced (expected) amount, not the stated contract price (IFRS 15.9.A1).

Contract Combination Assessment

(Optional)
Are there multiple contracts with the same customer (or related parties) entered at or near the same time that should be combined?

Contract Modification Assessment

(Optional)

IFRS 15 Revenue Recognition for Technology & SaaS

IFRS 15 for Technology & SaaS has fundamentally reshaped tech revenue recognition.

SaaS vs On-Premise: In SaaS, the customer never controls the software — it's a service recognised over time (IFRS 15.35(a)). For on-premise, the customer obtains control — it's a licence (right-to-use at a point in time, or right-to-access over time per IFRS 15.B56-B63). The IFRS IC (March 2019) confirmed: no right to take possession = service, not licence.

Implementation Services: Standard configuration is typically distinct. Significant code-level customisation may be inseparable (IFRS 15.29(a)). Examine scoping documents, not contract labels.

Material Rights: Discounted renewal options, loyalty credits, free user upgrades may be separate POs under IFRS 15.B39-B40. Allocate and defer until exercised or expired.

Contract Modifications: Adding users at standard rate = separate contract (IFRS 15.20). Mid-term tier upgrades may require catch-up or prospective treatment (IFRS 15.21).

Common Audit Pitfalls:

  • Misclassifying SaaS as a licence.
  • Overlooking material rights in renewal pricing.
  • Incorrect modification accounting.
  • Using list prices as SSP without adjusting for systematic discounting.

Typical Contract Structures

Ranges from simple SaaS subscriptions to complex enterprise agreements bundling licences, implementation, customisation, training, support, and hosting. Pricing models include fixed annual fees, per-user charges, usage-based, and hybrid. Multi-year contracts include renewal options and modification provisions.

Common Performance Obligations in Technology & SaaS

Software licence Cloud hosting (SaaS) Implementation services Customer support Training

Regulatory Context

The IFRS IC's March 2019 agenda decision on SaaS implementation costs and the April 2021 decision on configuration/customisation costs are relevant to the broader SaaS accounting framework.

Worked Example: Enterprise SaaS with Implementation, Support, and Training

CloudCo sells ERP SaaS ($200K/year for 3 years), implementation ($150K), and training ($50K). Customer cannot take possession of software. Renewal option at $160K/year (20% discount). Total = $800K.

Step 1: Identify the Contract

Single master subscription agreement with SOWs. All IFRS 15.9 criteria met. Implementation SOW not separate (interdependent pricing).

Step 2: Identify Performance Obligations

Four POs: (1) SaaS + support (combined); (2) Implementation — distinct (standard configuration); (3) Training — distinct; (4) Material right (renewal discount of 20%).

Step 3: Determine the Transaction Price

$800,000 fixed. No variable consideration. Practical expedient for financing (annual prepayments < 12 months).

Step 4: Allocate the Transaction Price

SSPs: SaaS $600K; Implementation $180K; Training $50K; Material right $56K. Total $886K. Allocated: SaaS $541,760; Implementation $162,528; Training $45,147; Material right $50,565.

Step 5: Recognise Revenue

SaaS: straight-line over 3 years. Implementation: over-time during 6-month period. Training: per day delivered. Material right: deferred until exercised or expired.

IFRS 15 Revenue Recognition Audit Toolkit — free PDF

Complete audit toolkit: IFRS 15 five-step decision flowchart poster, contract assessment template, PO identification checklist, SSP allocation worksheet, and industry-specific application notes.

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Frequently Asked Questions

Is SaaS recognised at a point in time or over time?
Over time under IFRS 15.35(a). The customer receives a service (continuous access), not a licence they control.
When are implementation services a separate PO?
When distinct under IFRS 15.27 — standard configuration is typically distinct. Significant code customisation may not be.
How to account for discounted renewal options?
If the discount is a material right (IFRS 15.B39-B40), allocate transaction price and defer recognition until exercised or expired.
SaaS vs licence — what's the test?
Can the customer take possession and run the software on their own infrastructure? If no, it's a service. If yes, it's a licence.
How are usage-based SaaS fees treated?
Variable consideration under IFRS 15.50-58 (not the B63 royalty exception, which only applies to IP licences). The 'as-invoiced' expedient (IFRS 15.B16) may apply.

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