ARR Is the Most Important Metric Accounting Firms Aren’t Tracking
Every serious tech investor pays attention to one number over all others: Annual Recurring Revenue, or ARR.
It signals health. It drives valuations.
Most accounting firms have no idea what theirs is.
We’re too busy staring at billable hours, utilization rates, and realization metrics to notice we’re running subscription businesses.
Clients come back every year for tax returns, audits, and bookkeeping. That's recurring revenue. That’s a subscription, even if we don’t sell it that way.
But we ignore the one metric that actually tells you how your subscription business is performing.
Standard-Setters Are Missing the Point
I've been thinking about this more since this Bloomberg story landed in my inbox. AI startups use ARR as their primary growth metric, but it’s slippery. CEOs can manipulate it to impress investors.
The problem is there’s no accounting definition for ARR.
Neither FASB nor the SEC has defined it. It doesn't exist in GAAP. Companies make it up as they go.
That's a transparency problem in the tech world. But it’s even worse in accounting: we ignore the metric entirely.
The Subscription Economy Caught Up to Accounting
The shift to fixed-fee pricing has been building for years.
CAS practices were the early adopters because hourly billing doesn't work when you've automated 80% of the data entry that you used to bill for.
So firms moved to fixed monthly fees. But they never adopted the mindset of a subscription business.
Think about what ARR tells you:
The total value of your returning clients
The value you're retaining year-over-year
Which clients are powering growth, and which are one-time distractions
None of that is visible on a utilization dashboard.
Where ARR Gets Slippery
The Bloomberg story gained traction because ARR is easy to manipulate.
Dishonest founders stretch the truth by annualizing monthly revenue from customers who won’t stick around.
If a client signs up for a trial and you multiply their monthly fee by 12, you count revenue that may never materialize.
Blending all of that into a single ARR number without accounting for churn (the percentage of customers you lose over the period) gives a misleading picture.
In Episode 484 of The Accounting Podcast, my co-host David Leary pointed out that B2B software contracts are getting shorter. Sub-one-year deals grew 4% in 2023 and 13% in 2026. "Recurring" is getting murkier.
The Challenge for FASB
FASB has spent decades refining standards for obscure derivative transactions. We have hundreds of pages on revenue recognition, lease accounting, and financial instruments.
But there’s zero authoritative guidance on ARR, the metric driving hundreds of billions in investment decisions.
If I were in charge of accounting standards, SaaS metrics would be the priority. Define ARR, Churn, and Net Revenue Retention (NRR). Give auditors something to test and investors a number they can trust.
We’re in the business of making financial information reliable. Right now, we’re failing the subscription economy.
Start Tracking ARR
We don’t have to wait for FASB to define ARR to start learning from it.
Build an ARR report for your own practice. List every client and their fixed monthly or annual fee. Sum it up.
Then track it monthly.
You'll see patterns your billable hours report never showed you. You’ll see which service lines are growing. You’ll see where you’re losing ground.
When FASB eventually gets around to defining churn and ARR, you’ll already understand what it means in practice because you use it. And you can help FASB define it.
You already have the data. You just haven't organized it this way yet.
