The buy-side Quality of Earnings team is claiming our software billing cycles do not comply with ASC 606 revenue recognition rules and wants to write down our trailing EBITDA. How do we defend our revenue timing without undergoing a costly retroactive audit?

Question

Tyler Smith · Accepted Answer

The buy-side Quality of Earnings team uses ASC 606 discrepancies to chip away at your enterprise value by shifting recognized revenue into future periods, which artificially reduces your historical EBITDA. To fight back, you must bypass abstract accounting debates and present structured, operational data.

Start by pulling your automated billing logs and mapping them directly to your delivery milestones. Under ASC 606, revenue is recognized when control of the service transfers to the customer. If your automated systems track real-time utilization, API calls, or specific deliverables, you have objective proof of transfer. Use your weekly EOS® Scorecard history to demonstrate that your delivery metrics align exactly with your billing cycles.

Do not let the buyer treat deferred revenue as a permanent write-down. If revenue is pushed out of your historical trailing twelve months, it must land in the post-close period. This means your net working capital calculations must adjust to credit you for that cash.

Propose a net working capital adjustment that accounts for this deferred revenue. This ensures that even if your historical EBITDA is adjusted downward, you are paid dollar for dollar for the deferred cash left in the business at close. Your goal is to show that the cash has been collected and the service has been rendered, proving the economic value is real.