ASC 606: The Revenue Recognition Standard Explained
ASC 606, Revenue from Contracts with Customers, is the US GAAP standard that determines when and how companies recognise revenue. Issued jointly by FASB and the IASB in 2014, it replaced decades of industry-specific guidance with one principles-based model.
Scope and effective dates
ASC 606 is codified in FASB Accounting Standards Codification Topic 606. Public companies adopted it for annual periods beginning after 15 December 2017; private companies for periods beginning after 15 December 2018. Scope: any entity that enters into contracts to provide goods or services to customers, with narrow exceptions for leases (ASC 842), insurance (ASC 944), financial instruments (ASC 815/825), and guarantees (ASC 460).
The five-step model with FASB references
| Step | Core question | ASC reference |
|---|---|---|
| 1. Identify the contract | Is there an enforceable agreement with commercial substance? | ASC 606-10-25-1 through 25-8 |
| 2. Identify performance obligations | What distinct goods or services did we promise? | ASC 606-10-25-14 through 25-22 |
| 3. Determine transaction price | How much consideration are we entitled to receive? | ASC 606-10-32-2 through 32-27 |
| 4. Allocate transaction price | How much goes to each performance obligation? | ASC 606-10-32-28 through 32-41 |
| 5. Recognise revenue | When has each obligation been satisfied? | ASC 606-10-25-23 through 25-37 |
ERP platform ASC 606 support
| Platform | ASC 606 native? | Module name |
|---|---|---|
| SAP S/4HANA | Yes | Revenue Accounting and Reporting (RAR) |
| Oracle ERP Cloud | Yes | Revenue Management Cloud |
| Microsoft Dynamics 365 Finance | Yes | Revenue recognition module (F&O) |
| Oracle NetSuite | Yes (add-on) | Revenue Recognition module |
| Workday Financial Management | Yes | Revenue Management |
| Sage Intacct | Yes | Contract and Revenue Management |
| Oracle Hyperion | Partial | Financial Management (consolidation layer only) |
| Salesforce | No native | Requires financial ERP integration |
| Odoo | Partial | Requires custom configuration |
Common SEC comment letter topics under ASC 606
- Inadequate disaggregated revenue disclosures
- Remaining performance obligation disclosures—missing or incomplete
- Variable consideration constraint—insufficient documentation or premature recognition
- Principal vs. agent determination—inadequate disclosure of basis and financial effect
- Standalone selling price methodology—insufficient disclosure of estimation methods
Frequently asked questions
When did ASC 606 become effective?
Public companies: annual periods beginning after 15 December 2017 (calendar year 2018). Private companies: annual periods beginning after 15 December 2018 (calendar year 2019). Early adoption was permitted for annual periods beginning after 15 December 2016.
What is the FASB primary source for ASC 606?
ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” codified in ASC Topic 606. FASB also issued clarifying ASUs 2015-14, 2016-08, 2016-10, 2016-12, and 2016-20. The full codification is at asc.fasb.org.
Is ASC 606 the same as IFRS 15?
Substantially yes—the two standards were developed jointly and use the same five-step model. Narrow differences exist in IP licensing, sale-and-leaseback transactions, and certain practical expedients. For most transactions, the accounting outcome is identical.
What is ASC 606 software?
ASC 606 software refers to ERP modules or standalone applications designed to automate the five-step model—managing performance obligations, estimating and constraining variable consideration, allocating transaction prices using SSP methods, and generating required disclosures.
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