Fintech

The analysis runs per specified service: does the company control the service before it transfers to the customer? For most payment facilitators, the issuing bank and networks provide services the facilitator does not control, pointing to net presentation of interchange and network fees; processing and gateway services the company itself performs present gross. Indicators, primary responsibility, discretion in setting price, inventory-style risk, are weighed, not counted, and the conclusion can differ between merchant acquiring, issuing programs, and value-added services in the same company. Document the flow of funds, the contracts on each leg, and the conclusion per revenue stream, and keep the disclosure explicit about what is presented net, because reviewers ask for exactly that mapping.

What we do: We write the gross-versus-net memo per revenue stream with the funds-flow mapping attached, before financing diligence asks for it.

Recognize funds held for customers as an asset with an equal and offsetting liability, presented separately from corporate cash, with the restricted portion identified and reconciled in the cash flow statement per ASU 2016-18 (restricted cash rolls into the statement’s beginning and ending totals, with the reconciliation disclosed). State-by-state money transmitter regimes add permissible investment and segregation requirements whose evidence auditors test, and settlement timing creates in-transit balances that need a daily reconciliation control, because the account that breaks first in a scaling payments company is settlement. Interest earned on customer balances follows the contracts: where the company keeps the float, it is revenue or other income with the policy disclosed. The presentation memo plus the reconciliation control is the package that keeps this area clean.

What we do: We set the customer funds presentation, the restricted cash reconciliation, and the daily settlement control.

Under CECL, recognize lifetime expected losses at origination, on a methodology fit to the portfolio: vintage or roll-rate models work for short-duration consumer books, with reasonable and supportable forecasts layered on historical loss curves and the reversion approach documented. Origination fees and direct costs defer under ASC 310-20 and amortize as yield adjustments, which requires cost studies most startups have never run. The fair value option, elected instrument by instrument at origination, replaces the allowance with mark-to-market through earnings, simplifying operations at the cost of volatility, and it is irrevocable, so the election memo matters. Loans originated for sale sit at lower of cost or fair value (or FVO) in held-for-sale. Whichever path, the model governance, back-testing, qualitative overlays, documentation, is what the auditors actually test, so build it with the model, not after.

What we do: We build the CECL methodology, the origination cost study, and the fair value option memo, with model documentation your auditors can test.

Consideration payable to a customer reduces revenue unless it purchases a distinct good or service at fair value, and the definition of customer reaches down the chain to the customer’s customer. Cash back and rewards earned through use of the product are contra-revenue, accrued as earned with breakage estimated where rewards expire; sign-up incentives paid to users who are customers reduce revenue up to the revenue from that customer (excess can be expense); referral payments to existing customers for bringing new ones require the distinct-service analysis, and the marketing label on the invoice does not decide it. Card programs add the loyalty-points layer: a separate performance obligation when points are material, deferring revenue to redemption. Map every incentive program to its counterparty and its accounting once, in one policy memo, because these programs multiply faster than anyone re-papers them.

What we do: We map every incentive program to its counterparty and accounting in one policy memo, kept current as programs launch.

Sale accounting under ASC 860 requires legal isolation (true-sale and non-consolidation opinions for structured deals), the transferee’s ability to pledge or exchange, and no effective control retained through repurchase rights or unilateral call options. Recourse and credit enhancements do not automatically defeat a sale but are recognized as liabilities at fair value; participations must meet the participating-interest definition (pro rata cash flows, no subordination) or the whole transfer is a secured borrowing. Retained servicing is recognized as an asset or liability at fair value with the amortization-versus-fair-value election documented. Gain on sale is computed off the relative fair values of what was sold and what was retained. The transfer memo, deal by deal for the first of each structure, then by program, is the document diligence teams and auditors both open first.

What we do: We write the transfer memo per program: true sale, participations, recourse liabilities, servicing, and the gain-on-sale math.

Capitalize costs in the application development stage, coding, configuration, testing of new functionality, and expense preliminary-stage work, training, and post-implementation maintenance, mapping those categories onto agile reality: capitalizable work is the development of new features and enhancements that add functionality, evidenced by the ticketing system, while bug fixes, refactoring without new capability, and routine maintenance expense. Build the capture mechanism from engineering data (story labels, time allocation by epic) rather than after-the-fact estimates, capitalize the payroll and direct costs of the identified work, and amortize over a supportable life, typically three to five years for platform code, with impairment review when products sunset. Cloud implementation costs for hosted arrangements follow the same stage model under ASU 2018-15 but sit in prepaids and operating expense, not intangibles. The policy plus the engineering-data capture process is what makes this defensible at audit.

What we do: We set the capitalization policy and build the capture process from your engineering data, so the asset is supportable ticket by ticket.