Blog Highlights
- The software automatically generates the recognised revenues under the standards ASC 606, IFRS 15, and Ind AS 115 in for any project based enterprise. It makes revenue recognisable, as work is done and obligations completed rather than after issuing an invoice.
- Revenue Recognition is a problem of data delivery, particularly within pharma, GCC, IT services, and EPC companies. When you don’t have your project systems, timesheets, billing and financial applications tied together, revenue that you’ve earned can remain unrecognized, ultimately becoming revenue leakage.
- When milestone completion dates, timesheet logs, change order approvals, and billings happen as one-offs they are not properly reflected by project-based revenue recognition. Because of this cycle the active project portfolios have gaps where revenue has been earned but not recognized.
- Revenue recognition software needs to account for milestone based recognition, percentage completion recognition, fixed price, and time & materials revenue recognition. In project-based organizations, you need the recognition to trigger on deliverable events not typical recurring revenue schedules for subscriptions.
- Kytes ties together the end-to-end, opportunity-to-cash workflow – project delivery, milestones, change orders, timesheets, revenue recognition and P&L reporting. That enables finance teams to automate revenue recognition for the work that is delivered, establish clear audit trails, and streamline month-end reconciliations.
Revenue recognition software digitizes the accounting process of recording earned revenue based on ASC 606, IFRS 15 and Ind AS 115 (Indian Accounting Standard 115). This accounting guideline determines when a company may book the revenue of something delivered, but not billed, or something delivered and billed, but not earned. The applicable accounting standard in India is Ind AS 115, imposed by the Indian Ministry of Corporate Affairs for listed companies, starting April 2018.
For project-based businesses such as those in the IT services, pharmaceutical, EPC, and GCC industries, this is not a subscription amortization challenge.
This is a delivery data challenge. Projects might be completed, milestones signed, employees allocated to a new job, and finance is still expecting data before they can recognize the revenue. According to PMI’s Pulse of the Profession 2024 report, 12% of every project dollar is forfeited to poor project execution, much of which isn’t delivery failures but uncaptured, lost revenue.
The Invoice That Arrived Three Months After the Work Was Done
A CFO at a 500-person engineering services firm was examining the Q2 closing. They had successfully completed three big projects, all of which client’s had signed off on. The teams responsible for the project had already moved to new work, but Finance had not yet invoiced a single penny.
The issue wasn’t sloppiness – it was disconnected systems.
The PM system’s data showing project completion hadn’t been fed to the Finance system – which Finance lacked permission to access in the first place. Billing was expecting an email from the delivery lead, who assumed that the PMO had already sent it. When the invoice did go out, two clients were already in the next budgetary period. One even challenged the bill – its champion who approved the work was no longer with the company.
They collected less than three-quarters of what they billed, leaving the rest on the books as an uncollectible writeoff.
This is the very nature of revenue leakage within a project-driven enterprise. It is seldom a single dramatic incident; rather it is the cumulative result of numerous small gaps between delivery and recognition.
What Is Revenue Recognition Software?
Revenue recognition software automates the conversion of performed work into recorded revenue on a business’s income statement. The three revenue recognition standards – ASC 606, IFRS 15, and Ind AS 115 – work similarly and essentially state that revenue cannot be recognized until the performance obligations in a contract have been met. Cash receipt and invoice date do not qualify for recognition.
However, when a professional services firm or an enterprise that executes large and multiple projects takes on work, revenue recognition can be complex to manage manually.
It gets difficult to track performance obligations, their delivery progress, conditions for recognition, journal entries and general ledger posts automatically while ensuring complete audit trail. Indian Enterprises Need to Consider Ind AS 115 Indian Accounting Standard 115, or Ind AS 115, is India’s version of the new revenue recognition standard, as announced by the Indian Ministry of Corporate Affairs in the 2013 Companies Act. Ind AS 115, much like its counterparts IFRS 15 and ASC 606, follows a five-step model of revenue recognition. First, it asks to identify the contract.
Then, to identify the performance obligations of the contract.
Third, to determine the transaction price for the contract. Fourth, to allocate the transaction price among the performance obligations of the contract. Finally, to recognise revenue as and when each performance obligation has been satisfied.
For an Indian listed firm, or a firm that meets specified criteria, such asnet worth above ₹500 crore, Ind AS 115 is not optional. Indian IT and tech companies experienced a material impact when they migrated to Ind AS 115 in 2018, with many firms moving from the older method of recognising the revenue for completed contract to the more complex method of percentage of completion. Indian pharmaceutical companies faced significant challenges when migrating milestone based licensing deals.
Thus, If you are a company registered in India, the Ind AS 115 is something your business cannot afford to overlook.
It requires your revenue recognition system to be ready for Ind AS 115! Fortunately, the issue is fairly simple in case of subscription based companies; with a ₹12000 annual contract, you recognise ₹1000 every month across 12 periods – standard amortization is a fine mechanism to address this. Kytes.com Kytes
For project enterprises, the situation is different fundamentally. Revenue recognition needs to happen at the point of:
• Completion of a milestone: A discrete deliverable defined in the contract that is approved by the customer
• Percentage of completion: A measure of project or work completed against the project budget, plan, or estimate
• Time and materials: Time worked on approved project tasks and entered into the time sheet system
• Fixed price multiple performance obligations: Individual services, tasks, or deliverables within a single contract that each has a separate recognition trigger and timing.
Manual processes simply can’t simultaneously account for these four factors across a portfolio of 40 concurrent active projects. Inconsistent system handoffs (e.g. Project managers managing deliverables; the timesheet system tracking labor costs; the billing system managing the invoicing process) create opportunities for the missed recognition of earned revenue that would have otherwise hit the bottom line.
Why Does Revenue Recognition Fail in Project-Driven Enterprises?
Many tools on the market were built to address a subscription model. The basic assumption is that billing and recognition happen on a periodic basis – a known recurring schedule. If a customer ups or downgrades their subscription, the system will recalculate amortization.
That’s the problem they’re equipped to solve.
Project enterprises don’t have this problem at all. A time and materials contract will recognize revenue when an approved timecard goes off. A milestone-based fixed fee contract will recognize revenue when a certain stage of a project is officially completed and approved. A percentage completion contract necessitates real-time access to effort spent versus estimate to recognize revenue.
None of these occur based on a calendar; they occur based on deliverable data, residing within project management or time tracking software that most revenue recognition solutions simply can’t interpret.
Revenue recognition is also uniquely complicated in professional services because work happens under many different business arrangements. Not only does the calculation vary, it also makes a difficult period close process that much harder. Finance teams wind up creating manual workarounds.
A spreadsheet collecting deliverable data from a project manager. A back-and-forth email thread requesting sign-off on milestones. A reconciliation period that lasts 3 or 4 days at every close.
Systems lagging reality.
And all of this lag means lost revenue.
What Are the Five Root Causes of Earned-But-Unrecognized Revenue in Project Businesses?
Unrecognised earned revenue is rarely one large failure. It is five small, recurring gaps that compound across a
portfolio.
Milestone Completion Not Linked to Billing
The finance analysts have to follow-up with the project managers, have detailed discussions on the costs spent, deliverables completed, and then they ‘compute’ revenue to be recognized based on ‘certain rules!’ Invariably, this process is a rocky ride for both the project manager as well as the finance team – the project manager, in most cases, is focused on project delivery and customer satisfaction, while the finance team is focused on revenue recognition and cashflow. The conflict is there for all to see!
Timesheet Data That Arrives Late or Misallocated
If time-and-materials contracts are involved, revenue recognized equals hours that are approved to be billable multiplied by the rate the hours apply to. If the time entry after the billing period closes, or the hours go into the incorrect cost center, the recognized revenue number is incorrect. Finance closes to a number that is not accurate to what the delivery team did. In fact, as reported by SPI Research’s 2026 Professional Services Maturity Benchmark, companies that manage manual timesheets lose 15-20 percent of their hours each period simply due to being turned in late which lowers the overall recognize revenue amount.
Change Orders Not Reflected in the Recognition Schedule
If a customer asks for a scope extension mid project, and the delivery team start work before the Change Order is approved, the hours are delivered but aren’t contracted. When the Change Order eventually comes through (sometimes several weeks later), the recognition schedule hasn’t been updated automatically, so Finance still recognizes revenue against the existing contract. The extra work therefore hits the financials as a cost.
Fixed-Fee Projects Recognised at Billing, Not Completion
If a project is billing in 3 tranches(30 percent at kick-off, 40 percent at mid-project and 30 percent at delivery) then, revenue cannot be booked at each billing instance under ASC 606, IFRS 15 or Ind AS 115. Revenue should be bifurcated and recognized based on the fulfillment of performance obligations. If there is no automatic separation of billing and revenue recognition, accounting fraternity automatically bills based on revenue booking.
In Indian GAAP(Ind AS 115), such a practice is not acceptable in case of projects which have got a contract in relation of the control passes over the time, which are major of the EPC contracts and IT services contracts.
This also leads to major distortional impact on profitability and statutory audit impact on Indian listed company.
No Real-Time View of the Revenue Gap
When you have 30 to 50 live project engagements active at one time within your project-based organization, that disconnect between revenue generated and revenue recognized could reach millions of dollars. With no real-time visibility into that disconnect – by project, client, contract type, finance will have no visibility into revenue leaks before close. Forrester Research claims that businesses implementing a project accounting solution are cutting their period end close by 2-3 days versus those that manually combine results.
How Does Revenue Recognition Software Work in a Project Context?
When revenue recognition software is properly integrated with project delivery systems, the process works as
follows:
Step 1: Contract setup. The system receives contract terms, performance obligations, payment milestones, recognition approach (e.g., milestone-based, percentage-of-completion, time-and-materials). System establishes an accrual schedule linked to delivery date, not invoice date.
Step 2: Delivery data flows automatically. As the project progresses (timesheets are approved, milestones have been completed and signed off, change orders are agreed), the information fed through to the recognition engine comes naturally.
Step 3: Recognition triggers fire. When the delivery of the item for which revenue has been recognized satisfies the revenue recognition conditions specified by ASC 606, IFRS 15, or Ind AS 115, then the accounting software prepares the necessary entries and journalisation in. Deferred revenue is recognized as earned revenue in the income statement.
Step 4: Audit trails are created at every step. Every captured record is traceable back to the event it originated from – the time sheet entry approval, the client’s sign off, a change order. The record contains timestamps, the approving user and a contract number. Indian companies applying Ind AS 115 will also be comfortable using audit trails to satisfy the Companies Act 2013’s statutory auditor documentation standards. They come audit ready – not as an addition at month close.
Step 5: Finance sees a live view. The CFO and finance team view recognized versus deferred revenue per project, client and time period, updated real time, not imported out of a spreadsheet post month-end. For projects companies, that close 30 to 50 contracts at the same time each month, the collective saving in time and accuracy gained is substantial. Finance no longer spends 3 days compiling the numbers, they spend 3 days acting on the numbers.
What Should Project Enterprises Look for in Revenue Recognition Software?
We typically address questions on the depth ofASC 606 coverage, how SSPs will be allocated and how will we manage contract modification. They’re important, yes. But when we discuss revenue recognitionsoftwarefor a project based company incorporated in India, five functions are crucial:
Native Integration with Your Project Delivery Data Milestone completion, Timesheet approvals, Cost-to-Complete projects- all of that information needs to be in the recognition engine – naturally and automated. If you need to manually pull and load this information into the engine, it has to be loaded from your Project Management or your Accounting Software. You will fail in implementation because the hand-off of the data is what makes the recognition disconnect.
Variety of recognized methods. A company’s recognition methods could include a mix of the following options, all supported through few or even no subscription software available: Percentage complete; Milestones; Time and materials; Fixed-price with multi-element requirements. Even if you’re able to get a few of the above accommodated by a subscription service tool; your projects will need to have all of the above, at times even with the same client.
Revenue gap at any point in time: The Finance team must at all times have visibility as to what has been the revenues earned by the delivery team that have not yet been recognized or invoiced out. This should be your number # 1 management metric around revenue leakage-otherwise the surprise leakage of revenues in the close cycle continues!
Audit trails tied to delivery events ASC 606, IFRS 15 and Ind AS 115 – you are to recognize revenue on the completion of performance obligations. This must be proven on your audit trail by linking each recognition event to the underlying deliverable that drove it (signed timesheet, client-signed milestone, signed change order etc). It may not sound “nice” but to any one carrying out Statutory Audit of Indian entities under the Companies Act, 2013 it’s mandatory.
ERP integration that yields clean journal entries so that they can upload into your general ledger without account, cost center or period errors. If a tool to force an adjustment journal upload’s postdate is needed to get a compliant entry it can just post it into the next reporting period.
Ind AS 115 Support Services for Indian entities An entity that does not apply this standard (eg, a US GAAP compliant entity) might have a facility to automatically allocate revenue to performance obligations as prescribed by ASC 606 and IFRS 15, however, this might not be an appropriate solution to meet the requirements of the Indian Statutory Audit. The Institute of Chartered Accountants of India (ICAI) for indenting revenue from contracts and a notification issued by the Ministry of Corporate Affairs (MCA) have specified how the recognition entries, disclosures and audit documentation by the Indian companies, related to Ind AS 115 for the statutory audit. Although the functionality provided by this software under ASC 606 and IFRS 15 might satisfy statutory requirements of companies adhering to these two standards, this minimum requirement would be fulfilled to fully satisfy Indian companies’ statutory needs.
How Does Revenue Recognition Differ Across IT Services, Pharma, EPC, and GCC?
IT Services: Fixed-Fee Overruns, Timesheet Lag, and Ind AS 115 Transition
In IT services, the primary risk is a fixed fee contract with the delivery team going over budget.
The recognized revenue is fixed by contract. Actual costs rise. The margin gets silently compressed until the close of the project.
The secondary risk is a lag in timesheet capture. When engineers are billing on 12 active projects across 6 clients they regularly assign hours wrongly or are too late to submit them by cutoff. Each erroneous assignment leads to a recognition error.
For the Indian IT Services companies Ind AS 115 leads to a structural accounting change at adoption in FY18. Prior AS 9 used by most of these companies allowed for fixed price projects to be recognized by the completed contracts method and revenue recognition happened only after signing off. Ind AS 115 forced them to move to percentage of completion method for projects for contracts in which control passes over time. In order to meet these requirements, these companies had to restate all prior periods. The transition impacted the mid-market IT Services companies much more adversely due to the higher accounting & audit costs involved for these companies to transition to the same and do the necessary restatement. However, this was a benefit for Kytes clients in this segment that had the delivery-data recognition feature built into their platforms and they did not have to suffer the manual restatement nightmare.
IT Services: Fixed-Fee Overruns, Timesheet Lag, and Ind AS 115 Transition
Fixed price contracts where the delivery team blows out the estimated effort: By a long shot, this is the primary risk for IT services organisations. Contract revenue is static. Cost escalates and margins squeeze invisibly to contract close out.
Time Sheet Lag: Engineers juggling between a dozen active projects for half-dozen customers routinely misallocate time across different tasks and jobs or miss a timesheet cut-off by hours or days.
Each miss-allocated billable hour represents a booking error. How Ind AS 115 changed everything for Indian IT services firms The new revenue recognition accounting standard, Ind AS 115 (which Indian accounting adopted in April 2018) fundamentally changed revenue accounting for many IT services organisations. Prior to Ind AS 115 (AS 9), some companies applied a “completed contract” method for fixed priced contracts, deferring recognition of revenue until the customer had formally accepted the work. Ind AS 115 mandates application of the “percentage-of-completion” method for contracts where the customer takes control over time.
A sector wide change in 2018, many mid-tier Indian IT firms that had manual project accounting systems faced significantly increased audit and implementation costs to comply with the new standard.
For Kytes customers within this sector, the impact of this shift was far less as revenue recognition, based on the data from the delivery system itself was already a built in feature of the platform.
Pharma and CDMO: Regulatory Scope Changes Mid-Study
When a CRO analyzes a new study, their first question isn’t related to timeline. It’s resource access for therapeutic area, price to snag the bioanalytical scientist for a new sponsor, and compliance trail resiliency under a audit. Pharma revenue recognition is governed by the same question: at what point has the performance obligation been satisfied? For CDMOs & CROs, mid-study change requests by a sponsor often occur prior to the change order being executed, with additional work being rendered with no recognition trigger accruing, thus generating an accounting lag over 40 studies that no one knows is present until the annual audit.
EPC: Milestone Billing and Physical Progress Gaps
EPC projects recognize revenue based on milestones achieved physically: structural completion, commissioning, handover. If physical progress is tracked in one system and financial reporting in another, the figure for the percent completion applied for revenue recognition is almost invariably an estimate, and sometimes a wrong one. A 3-week delay in a milestone to achieve structural completion pushes out the billing event, pulls revenue into another quarter, and creates a revenue-cost timing mismatch that finance departments term as “cash flow pressure”. Which it isn’t, really: It is earned revenue that isn’t yet recognized because two disparate systems aren’t talking.
GCC: Multi-Currency Timesheet Compliance
GCC teams operate in 3 geographies, book costs in 3 currencies, invoice a single client in one currency, and close books in a monthly cadence. Timesheet compliance across a distributed set of teams in various time zones with different approval processes creates compliance risk. If timesheet compliance drops below 90 percent, (which is frequent in the GCC space under manual or semi-automated systems), the recognized revenue under the time & material contract is understated on a cumulative monthly basis. Indian GCCs operating under Ind AS 115 alongside group reporting, the task of reconciliation of Indian statutory books and group IFRS becomes increasingly difficult for an out-of-sync system to handle.
How Does Kytes Connect Revenue Recognition to Project Delivery?
In the IT services, pharma, EPC and GCC organisations that we serve, the revenue recognition challenge always presents the same face: delivery and finance have a completely different view of what is real, the difference is only discovered during close and at that stage, opportunities to address the revenue are already lost.
Kytes is a AI-driven PSA and project accounting software platform that unifies the entire opportunity-to-cash cycle: contract and estimation, delivery, milestone billing, revenue recognition to P&L reporting. In Kytes, Revenue recognition isn’t a module, it’s the immediate result of delivery events.
When your client approves a milestone inside Kytes – a revenue recognition transaction is posted automatically to the appropriate performance obligation and the correct accounting period. No e-mails, no spreadsheets, no three-day reconciliation.
When a time and materials contract time-sheet is approved – the calculation of recognized revenue in real time updates. Billable hours, correct rate and period of recognition is derived directly from system transactions.
When a change order is finalized, the allocation of price across performance obligations is instantly re-calculated and your recognition schedule is adjusted for the contract and not the initial award.
The Audit trail on each transaction that is recognized is directly tied to the specific delivery event, client approval and contract term that prompted the recognition. A Finance Manager looking to respond to an external audit request, under ASC 606, IFRS 15 or IND AS 115, can track any single revenue entry back to its ultimate source within 60 seconds.
Kytes clients across IT services, pharma, and EPC consistently report 9 percent margin uplift, 12 percent
increase in billable hours captured, and measurable improvement in close cycle time. Not because recognition
rules changed. Because the data connecting delivery events to financial recognition finally existed in one place.
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