With ASC 606 in place, it has never been more important to ensure that your business is in compliance with revenue recognition regulations. Put forth by the Financial Accounting Standards Board (FASB), ASC 606 is a set of requirements that companies must satisfy before they can recognize revenue. To this end, companies are increasingly developing a revenue recognition policy to ensure consistent application of ASC 606.
A little background before we jump in, consisting of five steps, the purpose of the ASC 606 framework is to:
- Remove inconsistencies and weaknesses in existing revenue requirements
- Provide a more robust framework for addressing revenue issues
- Improve comparability of revenue recognition across entities, industries, jurisdictions, and capital markets
- Provide more useful information to users of financial statements through improved disclosure requirements
- Simplify the preparation of financial statements by reducing the number of requirements to which an organization must refer
What You Need to Know About a Revenue Recognition Policy
Let’s first start with a description of a revenue recognition policy. Essentially, it’s a document that recaps your revenue recognition processes and methodologies. Your next question may be – why should I create a revenue recognition policy? We’ll answer this question with a question. Did you know that the most common type of fraud is improper revenue recognition, and that technology services companies are charged more frequently for fraudulence than companies in other industries? Should your financial statements come under scrutiny, a well-prepared revenue recognition policy can save you a lot of time and effort in producing contracts to account for certain line items in your financial statements. In addition, a revenue recognition policy will help your accounting team in preparing financial statement disclosures.
Creating a revenue recognition policy isn’t easy, however there are eight key considerations impacting performance obligations that should be part of your document.
- Description of the performance obligation
- Contract arrangement for the performance obligation
- Timing of the transfer of performance obligation to the customer
- Information about economic factors that affect the nature, amount, timing, and uncertainty of revenue and cash flows of a performance obligation
- Payment terms for a performance obligation
- How the timing of satisfaction of the performance obligation relates to the typical payment timing
- Obligations for returns, refunds or types of warranties
- Determine whether the company is a principal or agent for the performance obligation, and how that determination was made
To get an idea of what a revenue recognition policy looks like, let’s take a look at one created by Harvard University. A quick scan reveals their revenue recognition policy documents when revenue is to be recorded and recognized. It also contains the reason the policy was developed, who must be in compliance, financial procedures, definitions, related resources, revision history, and appendices.
Once your revenue recognition policy is developed, make sure it’s reviewed and approved by the appropriate levels of management. While a revenue recognition policy helps to ensure that you’re in compliance with ASC 606, there’s more you can do. Not only to remain in compliance but streamline your revenue recognition processes.
Key Components of a Revenue Recognition Policy
A revenue recognition policy serves as the authoritative reference for how an organization accounts for revenue across contracts, customers, and reporting periods. At its core, the policy establishes consistency in how revenue is measured, recorded, and disclosed, which is especially important as revenue models grow more complex. For organizations operating under the revenue recognition principle, this document creates alignment between accounting standards, operational processes, and financial outcomes.
Most revenue recognition policies follow a common structure. This typically includes a defined scope that outlines which transactions and entities the policy covers, along with clear definitions to eliminate ambiguity. A formal policy statement describes how revenue is recognized under accrual accounting, while designated roles and responsibilities clarify ownership across accounting, billing, legal, and revenue operations teams. Procedures and internal controls round out the document, providing guardrails for consistent execution and oversight.
A critical component of any policy is how performance obligations are identified and evaluated. Policies should clearly describe how contracts are assessed, how distinct obligations are separated, and how transaction prices are assigned using rules-based revenue allocation. This includes guidance on recognizing revenue over time or at a point in time, as well as how to manage deferred revenue and unearned revenue balances prior to recognition.
Alignment with the five-step revenue recognition standard is essential. A complete policy should explicitly reference how the organization identifies contracts, defines performance obligations, determines transaction prices, allocates those prices, and records revenue as obligations are satisfied. This alignment supports ASC 606 compliance while providing a consistent framework for handling a wide range of billing scenarios.
Strong policies also incorporate business-model-specific guidance. A SaaS organization may include subscription and usage considerations, while professional services firms may address milestone-based delivery. Including this level of detail improves clarity and supports accurate contract-based revenue reporting across departments. Finally, version control, scheduled reviews, and documented approval workflows are all valuable governance tools designed to help maintain audit readiness and policy relevance as the business evolves.
Take the Complexities Out of Revenue Recognition
With the numerous ways revenue can be recognized such as point-in-time revenue recognition, milestone revenue recognition, triggering event revenue recognition, and recognition over time, recognizing and reporting revenue can get tricky. This is where a billing system built to handle the complexities of revenue recognition can automate the process of recognizing revenue, as well as simplify revenue recognition compliance.
BillingPlatform provides a robust billing solution built to manage the entire revenue recognition process. With BillingPlatform you’re able to automatically assign financial transactions and execute revenue recognition as events take place. Our rules-based revenue scheduling provides the flexibility needed to automatically allocate transactions to specific GL accounts, eliminating error-prone manual efforts. With our software, you can easily configure every aspect of revenue recognition – without IT intervention or custom coding.
Doing business on an international level? If so, BillingPlatform has you covered. With us as your partner, you’re able to align billing processes with global regulatory standards, as well as country-specific legislation. Our solution lets you establish tailored billing practices across all national and international business units according to current accounting standards, ensuring you’re always compliant with ASC 606 or IFRS 15. And that’s not all! We also help our domestic and global customers achieve billing compliance through our System and Organization Controls (SOC) 1 & 2 audit process.
Integration with general ledger and ERP systems supports seamless data flow and accurate reporting. Finance teams gain real-time visibility into revenue activity, supporting timely close processes and improved forecasting. Built-in controls and audit logging strengthen compliance across jurisdictions, supporting global billing compliance for organizations operating internationally.
BillingPlatform aligns with global accounting standards – including ASC 606 and IFRS 15 – while supporting SOC 1 and SOC 2 audit readiness. This combination of automation and governance helps organizations manage revenue complexity without sacrificing control or transparency.
Organizations navigating evolving revenue models, expanding product lines, or international growth benefit from a platform designed to scale with complexity. Our revenue recognition solutions help finance teams automate execution, reduce risk, and maintain consistent policy adherence as business requirements change.
Common Mistakes in Revenue Recognition Policies
Even well-intentioned revenue recognition policies can fall short if they lack precision or operational alignment. One common issue is vague or inconsistent definitions, which can lead to differing interpretations across teams. Without clear alignment to ASC 606, organizations risk applying outdated logic or misclassifying transactions that no longer fit current guidance.
Another frequent oversight is failing to document how contracts are evaluated at inception. Missing criteria for contract assessment, performance obligation identification, or pricing allocation can create downstream issues that surface during a revenue recognition audit. These gaps often result in delayed close cycles, rework during audits, or adjustments that disrupt financial reporting timelines.
Policies that exist in isolation from operational workflows present additional risk. When revenue recognition logic is not connected to contract review processes, billing triggers, or delivery milestones, manual intervention becomes more common. This increases exposure to errors and weakens controls related to revenue fraud prevention, particularly in high-volume environments.
Fragmentation between teams is another challenge. Accounting, legal, billing, and revenue operations must collaborate closely to maintain consistent application of policy guidance. Without shared ownership, policies can drift from day-to-day practices, leading to inconsistent application of revenue recognition practices across the organization.
Regular review cycles help address these risks. Policies should be revisited annually or after significant changes in business operations, revenue models, or accounting standards. Continuous refinement helps organizations maintain accuracy, reduce compliance risk, and avoid costly restatements.
Revenue Recognition Policy vs. Revenue Recognition Procedure
Although closely related, a revenue recognition policy and a revenue recognition procedure serve different purposes. The policy defines the guiding framework, outlining what principles apply and why they matter. Procedures translate those principles into actionable steps that teams follow during daily operations.
A policy describes how revenue should be recognized under accounting standards. Procedures describe how teams execute that recognition, including tracking delivery milestones, recording journal entries, reconciling balances, and maintaining documentation. Together, they create a complete system for compliant revenue management.
Procedures often live in accounting manuals, internal documentation platforms, or system workflows. They support activities such as identifying when performance obligations are satisfied, recording revenue entries, and preparing disclosures tied to revenue disclosure requirements. Maintaining separation between policy and procedure allows organizations to update execution steps without altering core accounting positions.
Automation plays an important role in bridging policy and procedure. Tools that support accounting policy automation allow organizations to codify recognition logic directly into billing and finance systems. This reduces reliance on manual interpretation while supporting consistent execution across teams and regions.
BillingPlatform supports this alignment by enabling organizations to configure recognition logic, automate scheduling, and maintain detailed audit trails. By embedding policy rules into operational workflows, organizations can reduce complexity while supporting accuracy and consistency at scale.
Automating Revenue Recognition Policy Compliance with BillingPlatform
As revenue models grow more complex, manual execution of revenue recognition policies becomes increasingly difficult to manage. We address this challenge through our configurable revenue recognition engine designed to automate policy execution while maintaining flexibility.
BillingPlatform enables organizations to apply recognition logic at the contract level, supporting multi-element arrangements and complex pricing structures. Automated scheduling supports both point-in-time and over-time recognition models, including usage-based, milestone-based, and event-triggered scenarios. This automation reduces manual effort while improving consistency across transactions.
Integration with general ledger and ERP systems supports seamless data flow and accurate reporting. Finance teams gain real-time visibility into revenue activity, supporting timely close processes and improved forecasting. Built-in controls and audit logging strengthen compliance across jurisdictions, supporting global billing compliance for organizations operating internationally.
BillingPlatform aligns with global accounting standards – including ASC 606 and IFRS 15 – while supporting SOC 1 and SOC 2 audit readiness. This combination of automation and governance helps organizations manage revenue complexity without sacrificing control or transparency.
Organizations navigating evolving revenue models, expanding product lines, or international growth benefit from a platform designed to scale with complexity. Our revenue recognition solutions help finance teams automate execution, reduce risk, and maintain consistent policy adherence as business requirements change.
Don’t Leave Revenue Recognition Compliance to Chance
When selecting a billing solution, you need a company you can trust. One that enables you to streamline revenue recognition activities. Unlike other cloud and legacy billing solutions, BillingPlatform provides a complete solution that fulfills 100% of your business requirements.
Our cloud-based billing platform enables you to adhere to today’s strict compliance and security standards. That way you get everything you need to run your business with greater financial control and accuracy – and speed financial closing processes. Sound like a fit for your business? Get in touch with our experts today to talk more.
