Why ASC 606 Matters to Professional Services Organizations

Does your professional services organization know exactly where it’s making its money, or just where it thinks it is? Revenue recognition is the mechanism that closes that gap, defining precisely when and how revenue is earned throughout the accrual accounting process.

For professional services organizations, that distinction is everything. Revenue is rarely earned all at once. It unfolds across milestones, deliverables, and long-running client relationships, often shaped by change orders, variable scope, and evolving delivery models. When revenue recognition lags behind operational reality, financial reporting becomes less reliable and leadership decisions suffer as a result.

This is where ASC 606 comes into play. As the authoritative standard for revenue recognition, ASC 606 establishes a consistent, principles-based framework for recognizing revenue from customer contracts. Compliance is not simply an accounting exercise to directly impact forecasting accuracy, margin visibility, audit readiness, and leadership confidence in the numbers guiding the business.

By understanding what ASC 606 is, why it matters, how it works, and how it applies to professional services organizations, firms can move beyond compliance toward financial clarity and control.

What is ASC 606?

ASC 606 is a revenue recognition standard issued by the Financial Accounting Standards Board (FASB) to standardize how organizations recognize revenue from contracts with customers. Prior to its introduction, revenue recognition guidance was fragmented across industries, leading to inconsistent reporting and limited comparability between companies.

ASC 606 replaces industry-specific rules with a single, principles-based model designed to reflect the transfer of value to the customer. The goal is simple in theory but complex in execution: recognize revenue in a way that faithfully represents how and when goods or services are delivered.

For professional services organizations, ASC 606 is particularly impactful because revenue is often earned over time rather than at a single point. Engagements may span months or years, involve multiple deliverables, and include variable pricing tied to performance, usage, or outcomes. ASC 606 provides the framework to account for that complexity consistently, but only if firms can align contracts, delivery, and financial reporting.

Understanding the ASC 606 Model

ASC 606 was established in 2014 to standardize how companies recognize revenue from contracts with customers. At its core is a five-step model designed to align revenue recognition with the transfer of value.

This five-step model provides a clear framework for revenue reporting:

Step 1: Identifying the Contract

Determine whether a customer agreement meets the criteria to be accounted for under ASC 606, including approval, enforceable rights, and defined payment terms.

Step 2: Identifying Performance Obligations

Identify the distinct performance obligations in the contract. These are the promised services or deliverables that provide value to the customer, whether delivered individually or over time.

Step 3: Determining the Transaction Price

Define the amount the organization expects to be entitled to in exchange for fulfilling the contract. For professional services firms, this often includes variable consideration such as discounts, incentives, usage-based fees, or contingent pricing.

Step 4: Allocating the Transaction Price

Allocate the transaction price to each distinct performance obligation based on relative standalone selling prices. This step frequently introduces complexity for services organizations managing bundled offerings or blended delivery models.

Step 5: Recognizing Revenue

Recognize revenue when control of the promised service transfers to the customer. In professional services, this commonly occurs over time, requiring accurate progress tracking and close alignment between delivery and finance.

ASC 606’s international counterpart, IFRS 15, mirrors this five-step framework, supporting consistency across global financial reporting. For organizations operating internationally, understanding both standards is essential to maintaining alignment between regional operations and consolidated financials.

Relevance to Professional Services Organizations

Revenue recognition is uniquely challenging for professional services organizations. Engagements are rarely linear, and revenue models often combine time and materials work, fixed-price milestones, retainers, and recurring subscriptions within a single client relationship.

ASC 606 provides the structure to handle this complexity, but structure alone is not enough. Manual spreadsheets, disconnected systems, and after-the-fact reconciliations make compliance harder than it needs to be and obscure the real drivers of margin performance.

Strong, purpose-built professional services management software enables firms to operationalize ASC 606 by connecting contracts, project delivery, and financials in a single system of record. This alignment allows organizations to recognize revenue accurately as work progresses, adapt to scope changes without downstream disruption, and maintain confidence in reported results.

Kantata: Enabling Compliance and Maturity

Kantata plays a key role in helping professional services organizations operationalize ASC 606, not just comply with it. Our platform aggregates project, contract, and financial data in real time, giving finance and delivery leaders a shared, accurate view of revenue as it is earned.

By automating revenue calculations and streamlining period-end close processes, Kantata reduces manual effort and risk while improving visibility into both recognized and deferred revenue. This clarity supports better forecasting, smoother audits, and more informed decision-making across the organization.
At Kantata, we see ASC 606 compliance as a foundation for financial maturity, not a finish line.

When revenue recognition reflects how work is actually delivered, professional services organizations gain the insight they need to protect margins, scale responsibly, and compete with confidence. With Kantata, revenue recognition becomes a strategic asset, helping firms win where it matters most.