What it is
Subscription revenue is recognized over time, but the audit risk lies in contract terms: bundled products, implementation fees, ramped pricing, usage fees and side letters. Revenue is a presumed fraud risk, so the checklist starts with contract reading and the systems that feed the ledger.
It continues with the deferred revenue rollforward, receivables, capitalized commissions and software costs, equity instruments and disclosures. Management metrics such as ARR are reconciled to GAAP but are not audited unless the engagement says so.
When to use it
- Planning an audit of a software, platform or subscription company.
- When the company has grown fast, raised capital or changed its pricing.
- To document contract testing and the deferred revenue rollforward.
What’s inside
- Systems, report reliability and the fraud risk response
- Contract reading: obligations, SSP allocation, ramps, usage and modifications
- Revenue and deferred revenue recomputation and cutoff
- Receivables, credit losses and sales tax nexus questions
- Capitalized commissions and software, equity and disclosure
Standard cited
This template follows AU-C 240 / ASC 606 / ASC 340-40. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use. See AU-C 240 explained.
Questions
Do I read every contract?
No, but read a risk-based sample in full, including order forms, amendments and side letters, and include contracts signed in the last month of the period when cutoff and side-agreement risk is highest.
Can commissions be expensed instead of capitalized?
Incremental costs of obtaining a contract are capitalized under ASC 340-40 if expected to be recovered, with a practical expedient to expense when the amortization period would be one year or less.
Is ARR audited?
Not as part of a financial statement audit. If it appears in lender or investor packages, reconcile it to GAAP revenue and billings and understand the definition, but do not describe it as audited.
Related templates
- Audit Program: Accounts Receivable and Revenue
- IPE Testing Worksheet (Information Produced by the Entity)
- Journal Entry Testing Workpaper (AU-C 240)
Last updated 11/05/2026. All free templates.