Why SaaS Businesses Struggle with Revenue Recognition
Recurring revenue is the engine of SaaS success — but it also creates some of the most misunderstood compliance risks for Australian founders.
Under AASB 15 (“Revenue from Contracts with Customers”) and ATO TR 2019/1, software subscription revenue must be recognised as services are delivered, not when invoices are paid.
Yet Salesforce’s State of Finance Report 2024 found that 63 % of SaaS companies admit their revenue recognition policies don’t align with delivery obligations. That misalignment often leads to overstated metrics, compliance exposure, and investor mistrust.
This article builds on our in-depth resource, The Ultimate Guide to Accounting for SaaS & IT Businesses in Australia, and zooms in on how to recognise recurring revenue accurately — and compliantly — under ATO and AASB 15 rules.
1. The Principle: Revenue Follows Delivery, Not Cash
The core rule is simple: recognise revenue when you deliver value.
If a client prepays $12 000 for a 12-month subscription, only $1 000 per month should hit your P&L.
| Date | Event | Accounting Treatment |
|---|---|---|
| Jan | $12 000 received | Cash increases – no revenue recognised |
| Jan–Dec | Monthly service delivered | $1 000/month recognised |
Despite this clarity, 1 in 4 Australian tech firms still recognise full SaaS income upfront, according to Xero Small Business Insights 2025. The result: misstated profits, distorted KPIs, and potential non-compliance during audits.
2. Contract Obligations and Performance Splits
Each contract must be analysed for distinct performance obligations under AASB 15:
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Onboarding/setup fees → Recognise when the onboarding is complete
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Subscription access → Recognise progressively over the service period
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Support or customisation → Recognise as performed
When obligations are bundled together, your Monthly Recurring Revenue (MRR) becomes unreliable — and investors notice.
3. Common SaaS Recognition Mistakes (and How We Fixed Them)
| Mistake | Description | Impact |
|---|---|---|
| Cash-basis recognition | Recording all subscriptions on payment | Inflated ARR and profit margins |
| Bundled contracts | No split between setup and access | ATO non-compliance |
| No accrual adjustments | Ignoring delivered-but-unbilled services | Misleading P&L |
42 Advisory Case Study — Chadstone SaaS Client:
This client recorded all prepaid annual subscriptions on a cash basis. Their ARR appeared 35 % higher than reality, skewing investment decisions.
We introduced:
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Accrual-based revenue schedules in Xero
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Automated month-close using FYI + Zapier
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Contract-level deferral journals
Within three months they achieved 95 % reporting accuracy, improved forecasting speed by 35 %, and restored investor confidence.
4. Timing Differences & Accrual Adjustments
Timing
Revenue must mirror delivery, not billing.
Annual or multi-year subscriptions require monthly (or daily) recognition.
Accruals & Deferrals
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Deferred Revenue → Cash received for future services
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Accrued Revenue → Service delivered but not yet invoiced
SaaS firms with automated revenue recognition systems grew 1.8 × faster year-on-year than manual operators — largely because their data reflected true performance in real time.
5. Staying ATO-Compliant: Practical Checklist
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Map every contract obligation under AASB 15
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Automate deferral entries via Xero + Automations
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Run monthly close reviews to capture accrual and deferral adjustments
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Document your policy with ATO and AASB references
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Engage periodic advisory reviews to validate the application and maintain audit-readiness
6. Why This Matters for CFOs and Founders
Revenue recognition impacts every strategic metric:
| Metric | Value of Compliance |
|---|---|
| MRR / ARR | Accurate growth and retention analysis |
| CAC: LTV Ratio | Reliable profitability assessment |
| Cashflow Forecasts | Predictable timing for tax and re-investment |
| Investor Reporting | Transparent and defensible numbers |
When your revenue recognition aligns with AASB 15 and ATO guidelines, your KPIs stop lying — and your strategy starts accelerating.
Final Word
Revenue recognition isn’t a bookkeeping footnote — it’s a strategic foundation.
By aligning timing, contracts, and accruals correctly, SaaS leaders gain clearer visibility, stronger compliance, and investor-ready confidence.
At 42 Advisory, we help SaaS founders translate accounting complexity into data-driven clarity — through automation, fixed-fee transparency, and advisory insight.
If your revenue looks healthy on paper but not in performance, it’s time to realign.
Explore our broader insights in The Ultimate Guide to Accounting for SaaS & IT Businesses in Australia to strengthen your entire compliance and growth framework.