Revenue Recognition Services

ASC 606 streamlines revenue recognition by replacing a patchwork of industry-specific rules with a single, five-step framework. Under this standard, revenue is recognized as your business fulfills its promises to customers — rather than when it is “earned” — offering greater transparency and consistency. This involves clearly defining contracts and performance obligations to ensure your revenue reporting is accurate and compliant. Both public and private entities reporting under U.S. GAAP (generally accepted accounting principles) are required to adopt ASC 606, while international companies follow similar guidelines under IFRS (international financial reporting standards).

Navigating these changes can be complex, which is why having an experienced advisor is essential. The team at Mowery & Schoenfeld is here to help you stay compliant, manage tax implications, and support a smooth transition to the new standard.

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The Old Model: Recognizes revenue when a company ‘earns’ it

The old model led to similar companies arriving at different revenue recognition for similar services or goods, making it difficult to compare companies or compare certain goods and services.

In addition, U.S. GAAP had more than 200 pronouncements for how to recognize revenue, leading to inconsistencies, even within companies and industries.

The New Model: Recognizes revenue as companies fulfill their promises to provide goods or services to their customers

In addition to being required for entities that report under U.S. GAAP, the new revenue recognition standards provide many benefits to owners/management team and investors.

• Clearer picture of the business with better insight into which parts of a contract are most profitable.
• Consistency across industries and companies, making it easier to compare goods and company performance.
• Revenue will be based on the same conceptual framework for all companies — making comparison and consideration more accurate for investors and interested parties.

There are situations where income or expenses are recognized at different times for accounting purposes vs. when they are reported for tax purposes. For example, under ASC 606, a company may recognize revenue in its financial statements when performance obligations are fulfilled, but the IRS may require that revenue be recognized at a different time for tax filings. These differences are considered “temporary differences” because they will reverse over time, meaning that the total amount of income or expense recognized will eventually be the same for both financial and tax purposes, just not in the same periods.

It’s important to track these temporary differences because they affect the calculation of deferred tax assets and liabilities on the financial statements. Keeping accurate records helps ensure compliance with both financial reporting standards and tax regulations, and it supports proactive, proper tax planning to minimize surprises during tax season.

In most cases, companies must file an Application for Change in Accounting Method (IRS Form 3115) to reflect the changes in recognizing revenue on their income tax filings, starting with the 2019 tax year.

As always, consult with your tax advisor to determine the best approach for your situation.

Mowery & Schoenfeld works closely with clients to identify contracts, evaluate performance obligations, and update systems for effective revenue recognition. Our implementation guidance ensures that documentation is drafted with clarity and compliance in mind, while contract evaluation and process updates are incorporated seamlessly.

Our team also offers expertise in updating controls and training staff, supporting your team every step of the way. Clients get access to the revenue recognition resource center, which features practical guides and thought leadership to help organizations navigate ASC 606 requirements. From initial assessment to ongoing compliance support, Mowery & Schoenfeld provides hands-on assistance and is equipped to scale solutions for businesses facing complex challenges.