Revenue Recognition in Accounting: How and When Companies Record Sales Under the Latest 2025 Standards
- Graziano Stefanelli
- Jun 1
- 4 min read
Revenue is the money a company earns by selling goods or services. Revenue recognition is the accounting rule that decides when that money is recorded.
1. The Big Idea in One Sentence
Record revenue only when you have transferred control of promised goods or services to the customer and you know how much you will receive.
This single concept forms the foundation for both U.S. GAAP (ASC 606) and IFRS 15. Everything else is about applying and supporting this idea.
2. The Five-Step Model (ASC 606 / IFRS 15)
3. Judgment Hot-Spots
Variable consideration – Estimate expected refunds, price concessions, or usage-based royalties. Include them only if it is “probable” (US) or “highly probable” (IFRS) that a significant reversal will not occur later.
Principal vs. agent – Decide whether you control the good/service before transfer (principal) or only arrange for another party to supply it (agent).
Timing of control transfer – This is especially tricky for SaaS, intellectual property licenses, and long-term construction projects.
Non-cash and share-based consideration – Measure these at fair value on the correct date. Recent standards and clarifications have refined the measurement points.
4. ASC 606 vs. IFRS 15 – Remaining Differences
Still, the two standards are about 95% converged, so multinationals can usually apply one main policy with only minor tweaks.
5. Recent Standard-Setting and Regulatory Focus (2024–2025)
6. Industry Spotlights
Software/SaaS and AI-as-a-Service – New industry handbooks provide guidance for usage-based pricing. Usage fees, overages, and training credits are typically treated as variable consideration unless customers can avoid them entirely at their discretion.
Education and subscription clubs – Up-front joining or enrolment fees rarely create a separate performance obligation and are usually advance payments.
Crypto and non-cash consideration – Changes in fair value between the contract and delivery date can create volatility. Regulators and standard-setters are watching this area closely.
7. What Researchers Are Finding
Recent studies link the subjective parts of the revenue standard to earnings management:
Companies under financial stress are more likely to use variable consideration estimates to smooth earnings, especially during crises.
Required disclosures under ASC 606 reduce the need for companies to issue voluntary revenue forecasts and tend to improve analyst forecast accuracy.
8. Auditor Checklist for 2025
Walk the systems – Ensure automated revenue schedules link cleanly to the disclosures presented in financial statements. Many recent regulatory inspections have found gaps in IT controls here.
Challenge variable consideration – Scrutinize assumptions around refund liabilities, usage projections, and milestone probabilities.
Trace disaggregation – Revenue categories in the footnotes should match how leadership manages the business and tie back to segment reporting.
Inventory share-based incentives – If customers receive equity as an incentive, start organizing those deals to apply new rules smoothly.
9. Looking Ahead (2026 and Beyond)
10. Key Takeaways for Practitioners
Tell your revenue story clearly – Explaining your approach and key judgments is just as important as the numbers.
Document everything – Auditors and regulators want evidence that estimates are grounded in real data and process.
Automate—but verify – Technology can speed up the process, but mistakes in mapping revenue streams to disclosure tables remain a common cause of regulatory questions.
Stay current – Even if core rules are stable, industry guidance and disclosure expectations continue to evolve every year.
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