Document how you treated difficult revenue recognition cases. Structured for auditors, written for humans. Fill it out, print it, attach it to your workpapers.
Fill in each section for a specific contract or revenue scenario that requires documentation. Use this for non-standard cases like contract modifications, material rights, usage-based pricing, or any deal where the revenue treatment required judgment. Each section includes guided prompts and an example. Your entries are saved automatically in your browser.
Identify the contract, the parties, and the basic commercial terms. This gives auditors the context they need before diving into the technical analysis.
Customer: Acme Corp (Enterprise SaaS, Series C funded). Contract type: 24-month platform license + implementation + premium support. Total contract value: $480,000. Effective date: January 1, 2026. Why this memo exists: Contract includes a 40% renewal discount (potential material right) and custom AI model training that may not be distinct from platform access.
List every promise in the contract and explain why each is (or isn't) a distinct performance obligation. This is usually where the judgment calls happen.
Promises identified: (1) Platform access, (2) Custom AI model training, (3) Premium support, (4) 40% renewal discount option.
Obligation 1 — Platform Access: Distinct. Customer can use the platform without the custom model (standard models available). Sold separately to other customers at $15K/mo.
Obligation 2 — Custom AI Model Training: Not distinct. The custom model only runs on our platform and requires deep integration with customer's data pipeline. The training is highly intertwined with the platform setup. Combined with Obligation 1 as a single obligation.
Obligation 3 — Premium Support: Distinct. Standard support is included with platform access. Premium support adds dedicated account manager + 2-hour SLA. We sell premium support separately for $3K/mo.
Obligation 4 — 40% Renewal Discount: This is a material right. The discount significantly exceeds what we offer to new customers (typical new customer discount is 10%). This creates a separate performance obligation representing the incremental discount value.
Explain how you determined the total transaction price, especially for contracts with variable consideration, usage-based pricing, or significant financing components.
Fixed consideration: $360,000 (platform + model training at $15K/mo for 24 months).
Variable consideration: Usage overages estimated at $5,000/mo based on expected value method using data from 12 comparable customers. Range: $2K–$9K/mo.
Constraint applied: Included $3,500/mo in the estimate (floor of highly-probable range based on minimum contractual usage + historical patterns).
Total estimated transaction price: $360,000 + $84,000 (overages) + $72,000 (premium support) = $516,000.
Financing component: None. Payment terms are monthly, consistent with delivery timing.
Show how you split the transaction price across performance obligations. Include standalone selling prices, the allocation math, and any discount allocation decisions.
SSP determination:
• Platform + Custom Model (combined): $420,000 SSP (based on similar deals, adjusted market assessment)
• Premium Support: $72,000 SSP ($3K/mo observable — sold separately)
• Material Right (renewal discount): $24,000 SSP (incremental discount of $8K/yr over typical new-customer price, discounted for 60% estimated exercise probability)
Total SSP: $516,000. Contract price: $516,000 (no discount to allocate).
Allocation: Platform + Model = $420,000. Premium Support = $72,000. Material Right = $24,000.
Variable consideration: Usage overages allocated entirely to Platform + Model obligation (directly relates to platform usage, consistent with allocation objective per ASC 606-10-32-40).
For each performance obligation, state whether revenue is recognized over time or at a point in time, and explain the measurement method.
Platform + Custom Model ($420,000): Over time. Customer receives and consumes benefit of platform access continuously. Custom model training is complete by month 2 but is combined with platform obligation. Recognized ratably over 24 months: $17,500/month. Revenue recognition begins when platform access is provisioned (January 1, 2026).
Premium Support ($72,000): Over time. Customer receives support benefit continuously. Recognized ratably: $3,000/month over 24 months.
Material Right ($24,000): Recognized when the customer exercises the renewal option (or when the option expires). If customer renews at the discounted rate, the $24,000 is allocated to the renewal period and recognized over the renewal term.
This is the most important section for auditors. Document every significant judgment call you made and the evidence that supports it. If your conclusion could reasonably have gone the other way, explain why you chose this path.
Judgment 1 — Combining platform + custom model: We concluded these are a single obligation because the custom model is deeply integrated with the platform and has no standalone value. Alternative view: the model could theoretically run on other platforms. Our rebuttal: the integration is proprietary and would require significant rework for another platform, making separation impractical. Consistent with treatment of similar deals (Customer X in Q3 2025, Customer Y in Q1 2025).
Judgment 2 — Material right valuation: We estimated a 60% exercise probability based on historical renewal rates for similar contract tiers (62% actual renewal rate over last 8 quarters). The incremental discount over new-customer pricing is $8K/year. We used the expected value method: $8K x 60% x 2 years (option period) = $9,600, then adjusted upward to $24,000 to account for the time value and the customer's stated expansion plans.
Judgment 3 — Variable consideration constraint: We constrained usage overages to $3,500/mo (vs. $5,000/mo expected) because this is a new customer with no historical usage data on our platform. The $3,500 floor is based on contractual minimum usage + 80th percentile confidence from comparable customer cohort. Will reassess quarterly.
Summarize the final revenue treatment in 2-3 sentences. State the applicable standard, the total transaction price, the number of obligations, and the recognition pattern. This is what an auditor reads first.
Summary: Under ASC 606 / IFRS 15, the Acme Corp contract ($516,000 estimated transaction price) contains three performance obligations: (1) Platform + Custom Model ($420,000, recognized ratably over 24 months), (2) Premium Support ($72,000, recognized ratably over 24 months), and (3) a material right from the 40% renewal discount ($24,000, recognized upon exercise or expiration of the renewal option). Variable consideration of $84,000 (usage overages) is allocated to the platform obligation and recognized as usage occurs, subject to quarterly reassessment of the estimate.
Applicable framework: ASC 606 (primary), cross-referenced with IFRS 15 for consistency.
Prepared by: Revenue Accounting, March 2026.
Reviewed by: Controller.
Use the 5-Step Guide for detailed explanations, or walk through the Audit Checklist to make sure you haven't missed anything.