The ASC 606 effective date depends on whether the entity is public or private. Public business entities, certain not-for-profit entities with publicly traded securities, and employee benefit plans that file with the SEC had to apply ASC 606 for annual reporting periods beginning after December 15, 2017, including interim periods within that year. All other entities, after a second deferral, had to apply it for annual reporting periods beginning after December 15, 2019, with interim periods following a year later.1Financial Accounting Standards Board. Revenue from Contracts with Customers (Topic 606) – ASU 2015-142Financial Accounting Standards Board. Accounting Standards Update 2020-05 – Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842)
For calendar-year companies, that meant public filers first reported under ASC 606 in their 2018 financial statements, and most private companies first reported under it in 2020.
Public Company Deadline
Public business entities were the first group on the hook. Any annual reporting period beginning after December 15, 2017 had to reflect ASC 606, and interim periods within that first year were included from day one. A calendar-year public company therefore adopted on January 1, 2018 and applied the standard to its first-quarter 10-Q that year.
The same December 15, 2017 trigger applied to not-for-profits with publicly traded conduit debt securities and to employee benefit plans filing with the SEC. If the entity’s securities or filings put it in front of public capital markets, it fell into the earlier bucket.
Private Company Deadline
Nonpublic entities landed on a later, and eventually a much later, schedule. After the first deferral, private companies were expected to apply ASC 606 for annual reporting periods beginning after December 15, 2018, with interim period adoption required for periods beginning after December 15, 2019.1Financial Accounting Standards Board. Revenue from Contracts with Customers (Topic 606) – ASU 2015-14
Then the FASB deferred again. In June 2020, ASU 2020-05 pushed the deadline for nonpublic entities that had not yet issued (or made available for issuance) financial statements reflecting adoption to annual reporting periods beginning after December 15, 2019. Interim periods for those entities followed a year later. The FASB cited two drivers: private franchise-industry companies were still working through how the standard treated initial franchise fees, and COVID-19 had compressed implementation timelines for organizations still in transition.2Financial Accounting Standards Board. Accounting Standards Update 2020-05 – Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842)
A private company that had already adopted, or had already issued statements reflecting adoption, could not roll back and take the extended deadline. The relief was only available to entities still ahead of the transition.
How the Effective Date Changed Over Time
The dates in current guidance are not the dates FASB originally set. Understanding both matters if you are reconciling older implementation memos, transition plans, or SEC comment letters.
When ASU 2014-09 first issued the standard in May 2014, public entities were slated to adopt for annual reporting periods beginning after December 15, 2016, and nonpublic entities for periods beginning after December 15, 2017. Early adoption was not permitted for public entities under that original schedule.3Financial Accounting Standards Board. Revenue from Contracts with Customers (Topic 606) – ASU 2014-09
Preparers pushed back on the timeline. Remapping existing contracts to the five-step model turned out to be more demanding than the original schedule assumed. In August 2015, ASU 2015-14 deferred every effective date by one year for every category of entity. That deferral produced the December 15, 2017 date for public entities and the (then) December 15, 2018 date for private entities. ASU 2020-05 later extended the private-company date another year for entities still in transition.
Early Adoption
Once the deferral was in place, any entity could adopt ASC 606 before its mandatory date, but only as of annual reporting periods beginning after December 15, 2016, which was the original pre-deferral public entity date.1Financial Accounting Standards Board. Revenue from Contracts with Customers (Topic 606) – ASU 2015-14 No entity could apply the standard to a fiscal year that started before January 1, 2017.
IFRS 15 Followed a Different Clock
ASC 606’s international counterpart, IFRS 15, applied to all entities, public and private, for annual periods beginning on or after January 1, 2018. If your organization reports under both frameworks, the U.S. GAAP and IFRS effective dates are not identical, though the substance of the two standards is nearly the same aside from a few differences in areas like licensing and collectibility.
What the Adoption Date Actually Triggered
The effective date wasn’t just a filing deadline. It was also the point at which a company had to lock in a transition method, and that choice was permanent once made.
Full Retrospective Method
Under this method, the company restated all prior periods presented in its financial statements as though ASC 606 had always been in effect. Comparability across years was high, which analysts generally preferred. The cost was going back through years of historical contracts and applying the five-step model retroactively.
Modified Retrospective Method
The alternative was to apply ASC 606 only to the current period, with no restatement of prior years. On the adoption date, the company recorded a one-time cumulative effect adjustment to the opening balance of retained earnings capturing the net difference in assets and liabilities that would have existed if the standard had been applied from the start.4U.S. Securities and Exchange Commission. Editas Medicine, Inc. Quarterly Report (Form 10-Q) – Revenue Recognition Companies using this method had to disclose the dollar impact of ASC 606 on each financial statement line item for the current period and explain why those amounts differed from what prior rules would have produced.
Private Company Practical Expedients
Beyond the extended deadlines, private companies could elect several practical expedients that narrowed the population of contracts requiring detailed transition analysis. Nonpublic entities could skip retrospective analysis of contract modifications that occurred before the adoption date. Contracts where all revenue had already been recognized under prior rules could be excluded from ASC 606 analysis entirely. And when the costs of obtaining a contract, such as sales commissions, would have been amortized over a period of one year or less, nonpublic entities could expense them immediately rather than capitalize and amortize.
Tax Method Change Tied to the Adoption Year
The financial reporting effective date also drove the timing of a related tax filing. Because ASC 606 changed when revenue was recognized on the books, companies often had a corresponding tax accounting method change to make in the same year.
Revenue Procedure 2018-29 established an automatic consent process under Internal Revenue Code Section 446 for taxpayers changing their tax accounting methods to align with ASC 606. Companies could file Form 3115 for the taxable year in which they adopted the new standard, with the option of implementing the change on either a cut-off basis or with a Section 481(a) adjustment that spread the impact over multiple years.5Internal Revenue Service. Revenue Procedure 2018-29 The taxable year that opened the window was the same one in which the entity first applied ASC 606 for financial reporting.