Verify ASC 606 Compliance

ASC 606 Revenue Recognition Engine Performance Obligation Identification AI parses contracts to identify distinct performance obligations under ASC 606 Step 2: Is each promised good or service 'distinct'? Can the customer benefit from it independently? Is it separately identifiable? Common SaaS complications: bundled licenses + implementation, renewal options at below-market rates, and material rights. Transaction Price Allocation AI determines the transaction price (Step 3) including: variable consideration (usage-based fees, earn-outs, SLAs with

credits), significant financing components (payment terms >12 months), and non-cash consideration. Allocates to performance obligations based on standalone selling prices (SSP) using: observable prices, adjusted market approach, or expected cost-plus-margin. Revenue Timing Determination For each performance obligation, AI determines recognition timing (Step 5): Point-in-time (control transfers at a moment — typically: perpetual licenses, hardware delivery) vs. Over-time (control transfers continuously — typically: SaaS subscriptions, managed services,

implementation with no alternative use). Journal Entry Generation AI generates the revenue journal entries: deferred revenue recognition schedules, contract asset/liability balances, and the month-end revenue waterfall. Reconciles billing (invoiced amounts) with revenue (recognized amounts) with cash (collected amounts). Disclosure Package AI generates the ASC 606 disclosure requirements: disaggregation of revenue (by geography, product type, timing), remaining performance obligations (backlog), and significant judgments (SSP methodology, variable

consideration constraints). Build an SSP matrix and update it annually — AI needs documented standalone selling prices for every product/service to allocate bundled contract values. Identify 'Material Rights' in contracts — free months, loyalty discounts, and below-market renewal options are separate performance obligations that must be allocated revenue. Automate contract modification analysis — AI should assess each amendment: is it a separate contract, a modification of the existing contract, or a termination-and-new-contract? Don't recognize

implementation revenue upfront if the customer can't use the software without it — bundled implementation is typically recognized over the contract term. Don't ignore variable consideration constraints — AI should only include variable amounts (usage fees, milestone payments) when it's 'highly probable' that a significant reversal won't occur. Don't skip the 'Portfolio Approach' option — for high-volume, similar contracts, ASC 606 allows portfolio-level application if results aren't materially different from contract-by-contract analysis. The 'Revenue

Quality' Dashboard Beyond compliance, track revenue quality metrics: Deferred Revenue Growth (leading indicator of future revenue), Net Dollar Retention (expansion vs. churn), Revenue Linearity (is 40% of quarterly revenue booked in the last week?), and Contract Duration Trends (lengthening = confidence, shortening = risk). AI can correlate these leading indicators with stock price movements, revealing which metrics your investors care about most.