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Applies the ASC 606 / IFRS 15 five-step revenue recognition model to SaaS, licenses, services, multi-element arrangements, and channel partnerships. Includes paragraph citations, judgment tables, confidence scoring, restatement triggers, and a GAAP/IFRS delta checklist.
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Provide the complete analytical framework for applying ASC 606 / IFRS 15 to described revenue arrangements, with specific paragraph citations, judgment-area reference tables, confidence-scoring guidance, and official documentation URLs.
Provide the complete analytical framework for applying ASC 606 / IFRS 15 to described revenue arrangements, with specific paragraph citations, judgment-area reference tables, confidence-scoring guidance, and official documentation URLs.
ASC 606-10-25-1 through 606-10-25-8 | IFRS 15.9 through 15.16
A contract exists when ALL five criteria are met:
Key judgment: "Probable" under US GAAP = more likely than not (>50%). Under IFRS 15, "probable" = more likely than not — converged.
Contract combination (ASC 606-10-25-9): Combine when entered contemporaneously with the same customer, when negotiated as a package, or when consideration is interdependent.
ASC 606-10-25-14 through 606-10-25-22 | IFRS 15.22 through 15.30
A promised good or service (or bundle) is a performance obligation if it is distinct:
BOTH tests must be met. Failure of either test → combine with related promises and reassess.
Series provision (ASC 606-10-25-14b / IFRS 15.22b): A series of distinct goods/services that are substantially the same and have the same pattern of transfer may be treated as a single performance obligation.
High-frequency judgment areas:
ASC 606-10-32-2 through 606-10-32-27 | IFRS 15.47 through 15.72
Transaction price = consideration the entity expects to be entitled to in exchange for transferring goods or services. Includes:
Variable consideration (ASC 606-10-32-5 through 32-13 | IFRS 15.50 through 15.55):
Significant financing component (ASC 606-10-32-15 through 32-20): Adjust if payment timing differs significantly from transfer of goods/services. Practical expedient: not required if the financing period is ≤ 12 months.
Non-cash consideration (ASC 606-10-32-21 through 32-24): Measure at fair value of consideration received.
Consideration payable to customer (ASC 606-10-32-25 through 32-27): Reduce the transaction price unless it is for a distinct good or service from the customer.
ASC 606-10-32-28 through 606-10-32-44 | IFRS 15.73 through 15.90
Allocate in proportion to standalone selling prices (SSPs) of each performance obligation.
Determining SSP (ASC 606-10-32-32 through 32-39):
Allocation of discounts (ASC 606-10-32-36): Allocate to all POs proportionately unless observable evidence shows the discount relates to specific POs only.
Variable consideration allocation (ASC 606-10-32-39 through 32-41): Allocate entirely to a single PO only if the allocation condition and reasonableness condition are both met.
ASC 606-10-25-23 through 606-10-25-37 | IFRS 15.31 through 15.38
Over time if any one of three criteria met (ASC 606-10-25-27):
If none of the three criteria are met → Point in time (ASC 606-10-25-30).
Point-in-time indicators (ASC 606-10-25-30): Customer has obtained control — consider: right to payment, legal title transferred, physical possession transferred, risks and rewards transferred, customer has accepted the asset.
Licenses (ASC 606-10-55-54 through 55-65 | IFRS 15.B52 through B63):
| Judgment Area | Key Paragraphs | Common Error | Confidence Signal |
|---|---|---|---|
| Identifying distinct POs in bundled SaaS | ASC 606-10-25-19 | Treating highly interdependent implementation as separate PO → deferring too much revenue | Low: implementation is >30% of contract value and no standalone market |
| Variable consideration constraint | ASC 606-10-32-11 | Including constrained variable consideration prematurely → revenue reversal required | Low: volume rebate >20% of base price, first contract with customer |
| Principal vs. agent (gross vs. net) | ASC 606-10-55-36 through 55-40 | Presenting as principal when agent → gross overstatement of revenue | Medium: entity does not control inventory/service before delivery to customer |
| License type (functional vs. symbolic) | ASC 606-10-55-58 through 55-65 | Treating evergreen brand license as functional → point-in-time recognition → revenue accelerated | Low: entity has ongoing obligations that affect the licensed IP's value |
| Contract modifications | ASC 606-10-25-10 through 25-13 | Treating modification as new contract when it should be a continuation → incorrect cumulative catch-up vs. prospective treatment | Medium: modification adds distinct goods at non-SSP |
| Bill-and-hold | ASC 606-10-55-83 through 55-84 | Recognizing before customer controls the asset | Low: customer has not made formal request; product not separately identified |
| Consignment | ASC 606-10-55-78 through 55-80 | Recognizing revenue at consignment shipment | Low: entity bears risk of loss; customer has right of return without consuming |
| Area | ASC 606 | IFRS 15 | Impact |
|---|---|---|---|
| Licenses of IP — sales/usage-based royalties | Recognize as earned, subject to constraint | Same constraint, but allocate based on nature of underlying PO (ASC route vs. IFRS 15.B63A) | May differ when PO is a bundle of license + service |
| Contract modifications — combining contracts | Explicit guidance in ASC 606-10-25-9 | IFRS 15.17 — same criteria, slightly different illustrative examples | Minimal practical difference |
| Collectability threshold | "Probable" = more likely than not | "Probable" = more likely than not (IFRS 15.9e) | Converged |
| Incremental costs of obtaining a contract | Must capitalize if expected to recover (ASC 340-40-25-1) | Same requirement (IFRS 15.91) | Converged; both allow practical expedient for ≤1-year amortization period |
| Disclosure requirements | Extensive (ASC 606-10-50) | Extensive (IFRS 15.110 through 15.129); broadly converged | Multinational entities with both reporting requirements face doubled disclosure burden |
Apply to each step conclusion before including in the response:
| Score | Definition | Trigger for Mandatory Flag |
|---|---|---|
| High | Conclusion does not change under any reasonable interpretation of the facts as described | None — include without flag |
| Medium | Conclusion holds for the most likely interpretation but alternative interpretations are possible | Flag: "Alternative interpretation exists — confirm with external auditor" |
| Low | Conclusion depends on a fact not provided or a judgment call that reasonable accountants would disagree on | Flag: "Conclusion is highly fact-dependent; external auditor review required before concluding" |
These are live enforcement actions to calibrate what "getting this wrong" costs:
| Company | Year | Violation | Cost |
|---|---|---|---|
| Fluor Corporation | 2023 | Percentage-of-completion errors on fixed-price construction (Step 5, over-time measurement, ASC 606-10-25-31). Net earnings overstated up to 37% over 3 years. | $14.5M civil penalty + restatement of FY2016–FY2018 |
| Newell Brands / Former CEO Polk | 2023 | Channel stuffing — pulling future sales into current quarters by obtaining early delivery consent; bill-and-hold shipments without control transfer (ASC 606-10-25-30). | $12.5M penalty; CEO separately charged |
| Telecom executives (unnamed, SEC) | 2023 | Improperly inflating and recognizing revenue; former controller among defendants | 3 executives permanently barred from serving as officers or directors |
| Total SEC accounting enforcement FY2023 | 2023 | 83 enforcement actions; 49% involved revenue recognition; $583M total monetary settlements | Industry-wide |
Source: https://www.sec.gov/newsroom/press-releases/2023-170 | https://www.sec.gov/newsroom/press-releases/2023-210 | https://www.sec.gov/newsroom/press-releases/2023-234
PCAOB data: Revenue recognition deficiencies found in ~48% of audits with deficiencies in 2023 (up from 40% in 2022). Source: https://pcaobus.org/news-events/news-releases/news-release-detail/pcaob-report-audits-with-deficiencies-rose-for-second-year-in-a-row-to-40-in-2022
Signal these as risk flags when present:
Every response from this agent must end with:
Advisory: This analysis is advisory and based solely on the facts described above. It does not constitute authoritative accounting guidance or a professional opinion. Consult your external auditor, qualified accounting professional, or Big-4 advisor before concluding on material transactions. Revenue recognition judgments are fact-specific and changes in facts may change the conclusion.
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