Revenue recognition remains a primary concern for software and the Software-as-a-Service (SaaS) companies due to the complex nature of their arrangements and evolving business models. The software industry encompasses the distribution, sale, and development of software services and products. This industry is transitioning to cloud computing and the SaaS model due to its cost-effectiveness, scalability, and flexibility, allowing users to access programs and data remotely via the internet. The process of revenue recognition is complex for SaaS-based companies due to its custom and mixed pricing plans for SaaS contracts and making revenue recognition a challenging task. Ind AS 115, Revenue from Contracts with Customers provides necessary guidance to navigate these complexities. In this edition of Accounting and Auditing Update (AAU), we aim to provide the key considerations for revenue recognition of software as a service with the help of illustrative examples.
On 12 August 2024, the Ministry of Corporate Affairs (MCA) issued Ind AS 117, Insurance Contracts. Ind AS 117 applies to all companies i.e. it applies to ‘insurance contracts’, regardless of the issuer, and therefore all companies could be affected, not just insurance companies registered with the Insurance Regulatory and Development Authority of India (IRDAI). Ind AS 117 contains detailed, complex and prescriptive guidance for recognising, measuring and disclosing insurance contracts. The definition of an insurance contract will change from that erstwhile standard, meaning that some contracts issued by companies could be an insurance contract, even if they are not called insurance contracts – e.g. product breakdown contracts or warranties. The standard is effective for annual reporting periods beginning on or after 1 April 2024. Ind AS 117 also prescribes various transition options for smooth implementation. Additionally, Ministry of Corporate Affairs on 28 September 2024, has clarified that an insurer or insurance company may provide its financial statement as per Ind AS 104 for the purposes of consolidated financial statements of its parent, investor, or venturer till the IRDAI has notified Ind AS 117. The article on this topic explains the applicability and scope of Ind AS 117 to all companies, especially for non-insurer companies.As is the case each month, we have also included a regular round-up of some recent regulatory updates.
As is the case each month, we have also included a regular round-up of some recent regulatory updates in India and internationally.
We would be delighted to receive feedback/suggestions from you on the topics we should cover in the forthcoming editions of the AAU.
For more information on this update, please write to aaupdate@kpmg.com.
