The Effects of ASC 606 on Revenue Recognition

Using 329 time-varying industry factors to capture heterogeneous revenue generation processes, we quantify the impact of ASC 606 on revenue recognition for US-listed firms. Relative to a dollar of revenue recognized in the current year, an average of 100 cents of revenue are recognized in the next year before ASC 606, and 56 cents after ASC 606’s implementation. Put differently, an average US-listed firm’s revenue cycle significantly shortens from 24.0 months to 18.7 months. This acceleration is consistent with ASC 606 requiring firms to recognize variable consideration in transaction price determination before uncertainty is resolved, and to use granular performance obligations as the units for recognition. We further document that firms have increasingly used ASC 606 jargon in their sales contracts, potentially to ease their compliance with the standard. Our study informs users of accounting revenue on the specific impacts of ASC 606, and introduces a novel technique that relies on industry factors external to individual member firms