Technology and software companies often generate revenue through a mix of subscriptions, licences, implementation projects, support contracts, usage fees and hardware sales. They may also invest heavily in software development, cloud infrastructure, product development and specialist staff.
These business models can create financial reporting questions around revenue recognition, deferred income, development costs, customer contracts, intangible assets and share-based payments. An independent audit examines the company’s financial statements and supporting records, helping directors, shareholders, lenders and other stakeholders gain confidence in the reported information.
Koh & Lim Audit PAC provides audit services for technology and software companies in Singapore. We work with software developers, SaaS providers, IT consultancies, managed service providers, technology distributors and businesses building digital products or platforms.
Independent audit services for technology companies
An audit involves gathering evidence to assess whether a company’s financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework and relevant requirements.
The audit needs of a technology business depend on how it earns revenue, develops products, engages customers and funds its operations. A company selling annual software subscriptions may have different accounting considerations from an IT consultancy billing for project work or a software developer receiving licence fees and implementation revenue.
Our audit approach begins with understanding the company’s business model, accounting systems, customer contracts and reporting needs. We plan procedures based on the company’s circumstances and the financial statement areas that require attention. We also communicate information requests and audit matters clearly throughout the engagement.
Why technology and software companies may need an audit
A Singapore company may need an audit to meet statutory requirements, satisfy a parent company, comply with financing terms or provide assurance requested by shareholders, investors or other stakeholders. A lender or investor may request audited financial statements when assessing the company’s financial position.
Some companies may qualify for an audit exemption, subject to the applicable criteria and their circumstances. ACRA provides guidance on the small company audit exemption framework. Companies should confirm their eligibility rather than assume that private ownership or a small team automatically removes the audit requirement. www.acra.gov.sg
Directors remain responsible for financial reporting. ACRA states that companies that are not audit exempt must present audited financial statements. www.acra.gov.sg The accounting standards applicable to a company depend on the entity and its circumstances. www.acra.gov.sg
An audit may also be requested as part of a group reporting process, shareholder arrangement, acquisition, investment round or financing agreement. Technology businesses should review their contracts and group instructions to understand any reporting deadlines and audit requirements.
Understanding technology business models
Technology companies may earn income in several ways, including:
- SaaS subscriptions and recurring platform fees
- Software licences and user-based charges
- Implementation, configuration and integration work
- IT consulting and software development projects
- Technical support and maintenance contracts
- Usage-based or transaction-based fees
- Sale of hardware, devices or bundled products
- Data hosting, cloud or managed services
Some contracts combine several of these services. For example, a customer may pay one amount for software access, implementation, training and ongoing support. The company needs to assess the contract terms and apply the relevant accounting requirements consistently.
During an audit, we may consider how the company identifies its contractual promises, determines the amount of revenue to record and decides when that revenue should be recognised. Clear customer contracts, billing records and service documentation help support these judgements.
Subscription revenue and customer contracts
Subscription revenue is a common feature of software businesses. Customers may pay monthly, annually or for a multi-year term. A company may receive cash before it has provided all the services covered by the subscription period.
The audit may review customer agreements, subscription schedules, invoices, payment records, renewal data and cancellation terms. These documents help assess whether revenue has been recorded in the appropriate period and whether amounts received in advance remain obligations to provide future access or services.
A contract may include several components, such as software access, onboarding, customisation, support or additional features. The accounting treatment depends on the terms and the applicable financial reporting framework. We may examine how management identifies these components and allocates the contract price between them.
Usage-based fees can require additional records. The company may need to retain system reports, usage logs, transaction summaries or customer statements to support the amounts billed. The audit may consider whether these records are complete and whether the related revenue is recorded in the correct period.
Deferred revenue, contract assets and receivables
When a customer pays before the company provides the contracted service, the company may need to record a contract liability or deferred revenue balance. This may occur with annual SaaS plans, prepaid support or advance payments for implementation work.
Conversely, a company may perform services before it has an unconditional right to invoice the customer. Depending on the contract, this could result in a contract asset or unbilled receivable. We may review project milestones, acceptance records, customer correspondence and later invoices or receipts to assess whether these balances are supported.
Technology companies may also have long payment terms, disputed invoices or customer concentration. The audit may include reviewing receivable ageing, payment history, customer disputes and cash received after year-end. Management should assess whether any balances may not be recoverable and whether an allowance is required under the applicable accounting framework.
Software development and intangible assets
Many technology companies invest in developing software, applications, platforms or digital products. These costs may include developer salaries, contractors, testing, cloud resources and other development expenses.
The accounting treatment depends on the nature and stage of the work, the company’s accounting policy and the applicable reporting requirements. Some costs may be recognised as expenses, while certain development costs may qualify for recognition as an intangible asset if the relevant criteria are met.
The audit may review project plans, budgets, technical assessments, time records, product roadmaps, management approvals and evidence of technical feasibility. We may consider when the company began capitalising development costs, which costs were included and how the asset is amortised or assessed for impairment.
Research and early-stage product exploration are not necessarily treated the same way as development work. Companies should keep records that distinguish research, product maintenance, bug fixes, new functionality and major development projects. A clear policy helps ensure that similar costs are treated consistently from period to period.
If a product is discontinued, no longer supported or fails to generate expected benefits, management may need to review whether the carrying amount of its development asset remains recoverable. The audit may examine relevant forecasts, customer adoption, product plans and subsequent developments.
Implementation and custom software projects
Some technology businesses earn revenue by implementing software for customers, migrating data, integrating systems or developing bespoke applications. These projects may have fixed fees, hourly billing, milestones, acceptance conditions or change requests.
The audit may examine customer contracts, project scopes, time sheets, delivery records, milestone approvals, acceptance certificates and invoices. These records can help assess whether revenue and project costs are recorded in the correct period.
Projects may change after work begins. The customer may request new features, revise specifications or delay implementation. The company should maintain documentation for approved change requests and distinguish them from work that is still under discussion.
Where a project is delayed or expected to cost more than planned, management should update the project forecast and consider whether the accounting needs adjustment. Project-level reporting can help identify cost overruns, unbilled work and delivery risks early.
Cloud costs, hosting and third-party services
Software companies often rely on cloud infrastructure, hosting providers, software tools, payment platforms and other third-party services. These arrangements may involve monthly usage charges, minimum commitments, prepaid credits, service-level agreements or multi-year contracts.
The audit may review supplier agreements, cloud invoices, usage reports, prepaid balances and commitments. The company should be able to reconcile significant cloud costs to usage or contractual terms and identify amounts that relate to future periods.
Third-party hosting and infrastructure costs may be directly linked to customer services or shared across products. Management should apply a consistent approach when classifying and allocating these costs in internal reporting and, where relevant, financial statements.
Payroll, contractors and share-based payments
Technology businesses may rely on employees, freelancers and specialist contractors. The audit may examine payroll records, bonuses, leave balances, contractor agreements and year-end accruals. Where staff work across products or client projects, time records or another consistent allocation method may support cost analysis.
Some companies provide share options or other equity-based incentives to employees, directors or advisers. The financial reporting treatment depends on the arrangement and applicable standards. The audit may review plan documents, approvals, valuation calculations, vesting conditions and records of grants or exercises.
Companies should keep complete records of employment agreements, contractor arrangements and compensation plans. These records help support payroll costs, accrued liabilities and any share-based payment accounting.
Hardware, equipment and software tools
A technology business may own or lease servers, computers, networking equipment, testing devices and other assets. The audit may examine purchases, disposals, depreciation, asset locations and whether equipment remains in use.
The company may also acquire software licences or development tools for internal use. Management should apply its accounting policies consistently when deciding whether costs are capitalised or expensed. Supporting records may include invoices, licence agreements, implementation costs and the date the software was ready for use.
Where the company leases office space or equipment, the audit may review lease agreements, payment schedules and management’s accounting calculations under the applicable framework.
Foreign currency and international operations
Technology companies may sell to customers or purchase services from suppliers in multiple countries. Transactions may be denominated in foreign currencies, and the company may have overseas subsidiaries, branches or contractors.
The audit may review foreign currency customer and supplier balances, bank accounts, exchange rate calculations and any related gains or losses. For groups, the work may also involve intercompany balances, consolidation adjustments and overseas financial information.
Companies should maintain consistent records showing transaction dates, currencies, exchange rates and settlement amounts. Clear reconciliations can help explain foreign currency movements and differences between invoices and receipts.
Financing, cash flow and going concern
Technology companies may incur substantial product development and marketing costs before generating consistent revenue. They may also depend on external funding, customer renewals or a small number of major contracts.
The audit may include reviewing bank balances, loan agreements, interest charges, investor funding documents, security arrangements and any borrowing covenants. Management should also monitor cash flow forecasts and funding plans, especially when the business is expanding or operating at a loss.
If the company has significant cash constraints, delayed customer payments, declining subscription renewals or uncertainty about future funding, directors may need to consider the effect on the company’s financial position and ability to continue operating. These matters may also affect the financial statement disclosures.
Audit preparation for technology and software companies
Preparing key records before the audit begins can help the engagement progress efficiently. Companies may find it useful to organise:
- The trial balance and draft financial statements
- Bank statements and reconciliations
- Customer contracts and subscription schedules
- Revenue reports by product, customer or service line
- Deferred revenue and contract asset calculations
- Project budgets, time records and delivery evidence
- Development cost schedules and supporting documentation
- Cloud hosting, software and supplier agreements
- Payroll, contractor and share-based payment records
- Fixed asset and lease schedules
- Loan, investor funding and covenant documents
- Details of disputes, customer credits and commitments
A staff member who can coordinate audit requests and explain the company’s systems can help reduce delays. Management should also prepare explanations for significant revenue movements, changes in customer retention, development spending and cash flow.
Our audit process
Our audit process begins with understanding the company’s products, revenue streams, customer contracts, accounting systems and reporting timetable. We discuss significant developments during the year, such as new product launches, funding rounds, acquisitions, customer concentration or changes to the subscription model.
We then plan the audit procedures and agree on the information needed. Depending on the company, the work may include testing transactions, reviewing customer contracts, assessing development cost calculations, confirming balances and examining financial statement disclosures.
At the end of the audit, we discuss significant findings and proposed adjustments with management. We issue the appropriate auditor’s report based on the audit evidence obtained and the applicable professional requirements.
The timing of an audit depends on the readiness of the records, complexity of revenue arrangements, availability of supporting data and timely resolution of outstanding matters. Early preparation is particularly helpful for companies with several revenue streams, overseas operations or group reporting deadlines.
Choosing an auditor for a technology company
When selecting an auditor, a technology or software company may want to consider whether the audit team will take time to understand its business model and explain the information requests clearly. It can also be useful to discuss the proposed timetable, reporting needs and how the audit will coordinate with the finance team.
An audit is an independent examination of the financial statements. It does not replace management’s responsibility for accurate records, sound financial controls, product management or information security processes.
Audit services for technology and software companies in Singapore
Koh & Lim Audit PAC provides audit services for technology and software companies in Singapore, including SaaS providers, software developers, IT consultancies, managed service providers and technology businesses with digital products or platforms.
Whether your company needs an audit for statutory compliance, group reporting, financing or stakeholder requirements, we can discuss the engagement scope and the records needed to begin. Contact Koh & Lim Audit PAC to arrange a discussion about audit services for your technology or software company in Singapore.