ASC 606 PIR: What It Is and Why It Matters

Introduction

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In 2014, the Financial Accounting Standards Board (FASB) first issued ASU 2014-09, which
became effective in 2018. The standard update aimed to create a unified framework for
recognizing revenue across industries by creating Topic 606, Revenue from Contracts with
Customers. As part of the standard-setting process, the FASB conducted a Post-Implementation
Review (PIR) in 2025 to assess whether the standard achieved its intended objectives. In this
article we explore the primary motivations behind the new standard and, the challenges in its
implementation across diverse industries. This article is meant to serve as a brief overview
of the PIR. For a more in-depth understanding, the PIR is available via the FASB
website.

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Background on Topic 606 and the PIR

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With the issuance of new guidance in Revenue from Contracts with Customers (ASC 606), the
FASB worked closely with the International Accounting Standards Board (IASB) to converge
revenue recognition standards globally and create a framework based on consistent principles.
The revenue standard shook up the financial reporting world as companies across industries
prepared to apply universal recognition principles based on contracts with customers. Under the
new standard, companies now use a five-step model to evaluate contracts, or agreements to
transfer goods or services to their customers.

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To apply the model, companies must determine when they satisfy a performance obligation to
provide goods or services to customers, with the crux of that decision coming from when
customers obtain control over those goods or services. Entities must also take into consideration
other factors, including whether they are the principal (the primary provider of a good or service
in a transaction) or an agent (an entity arranging for the provision of goods or services from a
principal to a customer). Although these principles are simple in theory, they require substantial
judgement to apply in practice.

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The FASB implemented the new standard to address deficiencies in previous guidance, which
included numerous standards that often differed by industry. In addition, some FASB standards
were not consistent with IFRS guidance. Working together, the FASB and the IASB created a
single set of principles to apply to revenue recognition, thus increasing comparability across
entities and reducing complexity of referring to multiple standards in financial statement
preparation. [iii] Overall, the updates found in Topic 606 for U.S. GAAP and IFRS 15 for IFRS aim to “remove inconsistencies and weaknesses in revenue requirements” and create a “robust
framework” for consistent and faithful revenue recognition.

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The PIR Process

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The overall objectives of the PIR were 1) to assess whether the new revenue standard was giving
financial statement users decision-useful information, 2) to analyze the benefits and the costs of
implementing the standard and if those benefits and costs aligned with the Board’s and financial
statement users’ expectations, and 3) to generate feedback on the FASB’s standard-setting
process and highlight the need for any potential adjustments.

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During the PIR process, the FASB engaged with over 2,000 stakeholders: 12% investors, 31%
preparers, 42% practitioners, and 15% academics, standard setters, and other groups. [vii] The
FASB solicited feedback from these stakeholders to help achieve a successful implementation
process and to understand the true benefits and costs of the updated revenue standard.

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The PIR process involved three stages:

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Stage 1: Post-Issuance Date Implementation Monitoring

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Stage 1 started after the issuance of Update 2014-09 in 2014 and continued until mid-2021 as
staff helped monitor implementation and respond to questions. The FASB created the Transition
Resource Group (TRG) to assist in the implementation process by holding public meetings and
issuing educational memos from 2014 to 2016. This led to the issuance of several updates and
deferred effective dates to provide preparers enough time to implement the standard’s sweeping
changes.

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Throughout Stage 1, the FASB received feedback from stakeholders that led to clarifications and
improvements to the standard. The TRG played an essential role in addressing implementation
issues, resulting in amendments to Topic 606. These amendments provided additional guidance
on principal versus agent considerations, performance obligations, and licensing, among other
areas.

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Stage 2: Post-Effective Date Evaluation of Costs and Benefits

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Stage 2 started when public entities adopted the standard in 2018 and continued through the
FASB’s October 2024 public board meeting. The focus of this stage for the FASB was to
identify the costs and benefits of the implemented standard, and to provide ongoing support for
stakeholders by responding to technical inquiries. The FASB solicited feedback through a variety
of methods including “advisory group meetings, outreach discussions, surveys, and a public
roundtable on the costs, benefits, and implementation challenges of the revenue standard…” ¹
The FASB and IASB regularly communicated with each other on the progress of each board’s
PIR process.

The FASB’s Stage 2 efforts found that the standard has generally improved comparability and
transparency in revenue recognition across industries, benefiting investors and financial
statement users. While initial implementation costs were significant, stakeholders largely view
the benefits as outweighing these costs. However, some challenges remain, particularly in areas
like contract liability accounting and distinguishing between different revenue models (e.g.,
licenses vs. SaaS). In 2024, the FASB issued two clarifications of “the interaction between the
revenue standard and other guidance under GAAP” to help stakeholders in their application of
ASC 606. ²

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Stage 3: Summary of Research and Reporting

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In Stage 3, the FASB’s documented and summarized the activities involved in the review
process and the actions it took to address issues. [vi] The resulting report explains that Topic 606
meets its intended purpose without significant unintended consequences, and ongoing
compliance costs remain manageable. The standard-setting process was refined based on
stakeholder feedback, particularly regarding implementation timing and convergence with other
standards. While some application challenges persist, they primarily stem from the inherent
complexity of revenue recognition rather than deficiencies in the standard itself. Moving
forward, the FASB will continue supporting the application of Topic 606 through technical
guidance and monitoring emerging issues but does not see a need for immediate standard-setting
action.

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Key Findings from the PIR

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Despite the FASB’s efforts to establish a consistent and coherent framework, revenue
recognition continues to be complex in areas that require significant judgment and estimation
under ASC 606. The PIR report highlights that applying the standard often necessitates
management assumptions, which impact both financial reporting and audit processes.

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A key challenge in ASC 606 is the reliance on management judgment and estimation,
particularly in areas such as variable consideration. For instance, when estimating future
revenue, companies must ensure that a significant reversal of the estimate is not probable. Given
the inherent uncertainty surrounding future transactions and customer behavior, companies must
carefully determine these estimates to maintain compliance with ASC 606 while minimizing
audit complexities.

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Business model evolution and financial reporting complexities also present significant
challenges, particularly in the technology, entertainment, and subscription-based services
industries. A key issue arises in hybrid transactions, which involve “both an on-premises
software license and access to cloud-based services.” Determining whether multiple performance
obligations are distinct in this case requires significant management judgment.

Insights from a FASB Revenue Recognition Project Manager

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As a part of our research for this paper, we conducted an interview with Jeff Wilks, a key figure
in the development of ASC 606. Wilks, who managed the project at the FASB from 2006 to
2008 and advised as an IASB technical consultant from 2008-2009, is now the Associate Dean of
the Marriott School of Business and the founder of RevenueHub. Our primary objective during
the interview was to explore the project team´s unexpected findings and reactions to feedback received in the PIR.

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Wilks described the standard's development as a monumental endeavor, characterized by
meticulous analysis and a proactive effort to anticipate potential implementation hurdles. “It was
such a comprehensive effort,” he recalled, “there were over 200 board memos written, and every
one of those dealt with issues that would impact implementation.” This thoroughness was
intended to minimize surprises during implementation.
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One of the most persistent challenges highlighted by Wilks was the standard's application to the increasingly complex realm of digital platforms and service-based economies. The principal
versus agent determination in particular emerged as a significant challenge. “The question that
you are asking is whether the complexity arises in the standard or in the business arrangements
themselves. In this case, digital platforms and services make it very difficult to determine which
party is the principal.” This quote highlights a key challenge faced in the PIR—discerning
whether implementation difficulties stem from the standard itself or the inherent complexity of
modern business transactions.

Wilks explained that the FASB’s approach to these challenges reflects a commitment to
principle-based standards that can adapt to evolving business models. The cornerstone of ASC
606, the “transfer of control” principle, represents a deliberate effort to capture the underlying
economics of revenue recognition. This principle was the culmination of extensive deliberation,
with alternatives like cash collection and delivery of goods being considered and ultimately
deemed insufficient. “We were writing a standard that was meant to capture the economics that
investors care about, somehow capturing that in the core concept or principle.” The choice of
control as the guiding principle aimed to provide a “universal principle that applies to all goods
and services,” thereby unifying disparate industry-specific guidance. As Wilks put it, “One ring
to rule them all.”

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Wilks also shed light on the FASB's proactive engagement with emerging issues during the
standard's development. Rather than wait for a general standard on revenue recognition to be issued, the FASB took on issues (via the EITF) like software that is embedded in hardware
through. "They just said, why wait?" Wilks recalled, emphasizing the proactive approach to providing guidance. This approach allowed for the early adoption of key principles, such as permitting an entity to estimate the selling price of an undelivered item even if that item was never sold separately, thereby streamlining the transition to ASC 606 when it was finally issued.

“That's an interesting point that didn't come out in the PIR. The fact is that we were dealing with issues while the project was developing, and nailing that principle early on allowed for other
revenue issues to be dealt with along the way, and they were very gladly received.”

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Looking forward, Wilks emphasized the ongoing need for adaptability. The standard's robustness
will continue to be tested by emerging business models and complex transactions, particularly in
areas like collaborative agreements and digital platforms. The principal versus agent
determination, for example, remains a subject of ongoing scrutiny. “For a manufacturing
business, control is relatively simple. But for software and virtual platform businesses, it is
sometimes difficult to determine what control really means.” The hope is that these questions are
answered by the principles presented in the standard and that as business transactions continue to evolve, the control principle will meet any new challenges that arise.

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The Future of Revenue Recognition and Policy Adjustments

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The PIR provided valuable insights for refining the standard-setting process. Notably, the PIR
highlighted the importance of establishing TRGs and of clarifying the scope of revenue standards
relative to other GAAP guidance. Furthermore, the PIR acknowledged the significant costs
incurred by entities in adapting to new accounting standards, even in cases where financial
reporting outcomes remain unchanged.

Despite these challenges, the findings from the PIR do not indicate an immediate need for
amendments to Topic 606. The FASB staff plan to continue supporting the standard's application through the Technical Inquiry Service and will monitor emerging issues that may require targeted improvements. This proactive approach ensures that any necessary adjustments are addressed in a timely manner while effectively maintaining global convergence.

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The journey toward a converged revenue standard exemplifies the extensive collaboration
required from the FASB and the IASB. Between 2002 and 2016, this project included issuing
numerous drafts, reviewing over 1,500 stakeholder comments, and holding nearly 50 joint board
meetings. While global convergence brought significant benefits such as enhanced comparability
and consistency, the process introduced added costs and complexity that future standard-setting
efforts must carefully weigh.

Conclusion

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The FASB maintains that the overall objective of ASC 606 was met, and that the benefits were
worth the costs. When asked if he believes the standard implementation was worth it, Jeff Wilks
acknowledged the significant costs incurred but concluded, “I think now that application of the standard is in steady state, people have been pretty happy with the standard. Yeah, I think it was
worth it.” The efforts of the FASB, the IASB, the TRG, and the countless stakeholders involved
in developing and implementing the new revenue guidance have led to the success of the
converged U.S. and international revenue standards and increased comparability for the top line
of the income statement worldwide. Going forward, companies will continue to use the robust
but simple model in ASC 606 to better understand and define revenue recognition for
increasingly diverse situations in a complex accounting world.

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1. FASB Review of Revenue Recognition (Topic 606)
2. FASB Post-Implementation Review Report: Revenue from Contracts with Customers (Topic 606)

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