Revenue Recognition as an applied accounting principle has gained significant importance since the roll out of IFRS 15 and ASC 606 principles. This has impacted how businesses recognize their revenues and financial reporting and in turn resulting in a more consistent approach across businesses. Revenue Recognition is typically determined on a contract-by-contract basis in order to capture the nuances of that specific contract and eliminate any linear approach to recognizing revenue. Revenue recognition is subject to the criteria of multiple deliverable arrangements based on the business needs. Under these criteria, in some scenarios like contract
manufacturing or infrastructure development, revenue may not be recognized systematically over the life of a contract; instead, it may be segmented and recognized when certain milestones or deliverables are achieved. To address these challenges, the FASB and IASB introduced a 5 Step Model for Revenue Recognition, offering a framework to drive consistency in financial reporting, facilitate comparative analysis and reporting, and simplify financial statement preparation, thus eliminating disparities.
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