Abstract:
This Deloitte article introduces the revenue recognition framework under ASC 606 and explains how companies should apply its five-step model to contracts with customers. It highlights key areas of judgment such as identifying performance obligations, determining transaction price, and allocating that price to distinct obligations. The article also addresses common complexities like variable consideration, principal–agent assessments, licensing, and disclosure requirements. Overall, it serves as a practical guide to interpreting the standard rather than simply restating the rules.
Why it Matters:
This guidance matters because revenue is one of the most influential measures of business performance, and errors in applying ASC 606 can significantly distort financial results. It helps organizations navigate judgment-heavy areas—like performance obligations, variable consideration, and principal-agent assessments—that often lead to inconsistencies or audit issues. By providing practical interpretations and examples, it enables more accurate and transparent reporting. This clarity benefits not only preparers and auditors, but also investors and stakeholders who rely on trustworthy financial information.
