Full explanation
Overview
One contract. Two rulebooks that were supposed to agree. And one of them says you have no revenue at all.
IFRS 15 and ASC 606 were written together, deliberately, to end the difference between them. The five steps are word for word the same. And yet the same contract can give you two completely different answers.
Four differences. That's the whole list.
So let's start with the answer, because that is what you came for. There are four differences that actually matter. One: the word probable. IFRS says more likely than not — more than fifty per cent. US GAAP sets a materially higher bar. On one shaky customer that single word is the difference between reporting a hundred and one thousand five hundred and thirty-nine euros of revenue and reporting absolutely nothing. Two: licences of intellectual property — the two rulebooks don't just disagree, they ask a different question. Three: policy elections on shipping and sales taxes, which US GAAP lets you simply choose and IFRS makes you work out. Four: impairment of contract costs, which reverses under IFRS and never reverses under US GAAP. That is the whole list. Everything else in this video is why those four exist, and exactly how each one works.
Five steps. Both standards.
And the convergence genuinely held. Step one, identify the contract with the customer. Step two, identify the performance obligations. Step three, determine the transaction price. Step four, allocate that price to the obligations. Step five, recognise revenue as each obligation is satisfied. That is not a summary of two standards. That is both standards. Learn the model once and it travels.
So if the model is identical, where do the differences come from? Mostly from a handful of words that mean different things in each framework.
The numbers both frameworks agree on
Let's put a contract on the table. Meridian Limited sells a customer a software licence plus two years of support, for one hundred and twenty thousand euros. Sold separately, the licence goes for ninety thousand and the support for forty thousand — one hundred and thirty thousand in total. So there is a ten thousand euro discount, and it gets allocated in proportion. The licence takes ninety over one hundred and thirty of the price: eighty-three thousand and seventy-seven euros. Support takes the rest: thirty-six thousand nine hundred and twenty-three. The licence is recognised when control transfers. The support spreads over twenty-four months, at one thousand five hundred and thirty-eight euros a month. Both frameworks agree on every number you just heard.
On this part, both frameworks agree
Before we get to where they differ, see where the money actually lands — because on this part both frameworks agree completely. The licence is a point-in-time obligation, so its eighty-three thousand and seventy-seven euros is recognised the moment control transfers. The support is an over-time obligation, so its thirty-six thousand nine hundred and twenty-three euros spreads evenly across twenty-four months. That means year one shows eighty-three thousand and seventy-seven of licence plus twelve months of support, eighteen thousand four hundred and sixty-two — a hundred and one thousand five hundred and thirty-nine euros of revenue. Year two shows the remaining eighteen thousand four hundred and sixty-one. And at the end of year one, that unearned eighteen thousand four hundred and sixty-one sits on the balance sheet as a contract liability. Add it up and you get exactly the hundred and twenty thousand you were paid — never more, never less.
So that is where the two frameworks agree completely. Now the first place they part company.
Same word. Different threshold.
Now change one fact. The customer's finances are shaky, and Meridian judges there is a sixty per cent chance of being paid. Step one asks whether collection is PROBABLE. Under IFRS 15, probable means more likely than not — more than fifty per cent. Sixty clears it, so a contract exists and Meridian recognises revenue exactly as we just calculated. Under ASC 606, probable means LIKELY TO OCCUR, a materially higher bar that in US practice sits somewhere around seventy-five per cent. Sixty does not clear it. So under US GAAP there is no contract, and therefore no revenue at all — Meridian waits for cash. Same facts, same five steps, same word on the page, and one framework reports one hundred and twenty thousand of revenue while the other reports nothing.
Same contract. Two different accounts.
Now put the shaky customer through both rulebooks and look at the actual statements, side by side. Under IFRS 15 the contract exists, so year one reports a hundred and one thousand five hundred and thirty-nine euros of revenue, and the balance sheet carries a contract liability of eighteen thousand four hundred and sixty-one for the support still to be delivered. Under ASC 606 there is no contract at all, so the income statement reports zero revenue — and any cash the customer has actually paid sits on the balance sheet as a liability until the collection criteria are met. Same contract, same work performed, same cash. A hundred and one thousand five hundred and thirty-nine euros of revenue on one set of accounts and nothing on the other. And from January twenty twenty-seven, IFRS 18 puts that revenue in the operating category of a defined income statement, while a US income statement has no such mandated categories — so even the shape of the page differs.
One difference down, and it is the biggest. Three more to go.
Never touches profit. Transforms revenue.
The second place they part company is gross versus net. If you control a good or service before it reaches the customer, you are the principal and you report the whole amount as revenue. If you merely arrange for someone else to provide it, you are an agent and you report only your commission. Both frameworks use that same control test — but ASU 2016-08 rewrote the US indicators, and in practice the assessments can land differently for the same platform or distribution arrangement. The difference never touches profit. It transforms the revenue line, which is the number most people look at first.
They ask a different question
Third: licences of intellectual property, and here the two frameworks don't just disagree, they ask a different question. ASC 606 sorts IP into functional or symbolic. Functional IP — software, a film, a drug compound — has standalone utility, so revenue is normally recognised at a point in time. Symbolic IP, like a brand or a team logo, has value only because the owner keeps supporting it, so revenue spreads over the licence period. IFRS 15 never uses those words. It asks whether the customer has a right to USE the IP as it exists today, which is point in time, or a right to ACCESS IP that the owner will keep changing, which is over time. Often you land in the same place. Sometimes you don't.
Then there's a category that catches people out completely — things US GAAP lets you simply choose, and IFRS makes you work out.
A US choice . An IFRS assessment .
Two policy elections exist in ASC 606 with no equivalent in IFRS 15. Shipping and handling: if control passes to the customer before the goods ship, US GAAP lets you elect to treat the shipping as a fulfilment cost rather than a separate performance obligation. IFRS 15 gives you no election — you assess it, and if it is a distinct service, you account for it as one. Sales taxes: US GAAP lets you elect to exclude all sales taxes collected from the transaction price, across the board. IFRS 15 makes you decide, tax by tax and jurisdiction by jurisdiction, whether you are collecting as principal or as agent. Same economics, less judgement on one side, more on the other.
Three more that quietly diverge
Three more, quickly, and they all sit in the same corner of the standard. Non-cash consideration — shares or goods instead of money: ASC 606 tells you to measure it at contract inception; IFRS 15 simply doesn't specify a measurement date, so practice varies. Capitalised contract costs, like a sales commission you've put on the balance sheet: if it becomes impaired and later recovers, IFRS 15 lets you REVERSE that impairment. ASC 340-40 forbids reversal — once written down, it stays down. And loss-making contracts: IFRS sends you to IAS 37 to book an onerous contract provision, while ASC 606 has no general onerous-contract model at all and leans on retained industry guidance instead.
Those are the four. But which of them actually costs you money depends on what you sell.
Same four differences. Different one matters.
Now, which of these actually bites depends entirely on what business you are in. Take software and SaaS: a licence is functional intellectual property, so both frameworks recognise it at a point in time — but software companies sell to early-stage customers with thin credit, so the collectibility threshold is where they diverge, exactly as we saw. Pharmaceutical and biotech licensing is the opposite: the deal itself is the judgement call. A compound licence is functional and lands at a point in time, while a brand licence is symbolic and spreads over the term — and IFRS gets there by asking right to use versus right to access, so the same agreement can fall into a different period on each side. Online marketplaces and retail live and die on principal versus agent, because that decides gross versus net revenue, and it is where ASU twenty sixteen dash oh eight rewrote the US indicators — a marketplace reporting gross can look several times larger than an identical one reporting net. And construction and engineering: on a loss-making contract IFRS sends you straight to IAS 37 for an onerous provision, while ASC 606 has no general onerous-contract model, so the loss can hit in a different period. Same four differences, a completely different one mattering most to each.
And one difference is newer than convergence itself — the boards actually drifted apart again after 2018.
They drifted apart again
In 2021 the FASB issued ASU 2021-08. When you acquire a business, the contract assets and contract liabilities that come with it are now measured under ASC 606 — on a carryover basis, as if the acquirer had originated them. IFRS 3 still requires fair value. So a US acquirer and an IFRS acquirer buying the identical business will carry different deferred revenue and report different post-acquisition revenue. That is a divergence created three years AFTER the standards converged. Two smaller points worth knowing. On disclosure, ASC 606 lets you leave a sales or usage-based royalty on a licence out of the remaining-performance-obligation disclosure, where IFRS 15 gives you no such relief. And one people often assume differs but doesn't: insurance is carved out of BOTH frameworks — IFRS 15 excludes IFRS 17 contracts, ASC 606 excludes ASC 944 contracts. Add to it that US public companies carry heavier interim revenue disclosures — that is ASC 270 against IAS 34, and IAS 34 simply asks for less — and that ASC 606 kept some industry-specific guidance while IFRS 15 deliberately kept none.
Five adjustments, in order
So here is the part that matters most if you actually have to compare two companies. Say one reports under IFRS and the other under US gap, and you want to know which is genuinely performing better. Five adjustments, in order. First, the revenue line itself: check principal versus agent before anything else, because a company reporting gross against a competitor reporting net can look several times larger on identical economics. If you cannot tell, normalise both to net. Second, look at customer credit quality: an IFRS reporter may be recognising revenue that a US reporter on identical facts would defer entirely, so a business selling to weak-credit customers will look stronger under IFRS. Third, check whether licence revenue is point in time or over time — on our contract, a symbolic classification under ASC 606 pushed forty-one thousand five hundred and thirty-three euros out of year one that IFRS recognised immediately. Fourth, if either company has made an acquisition, their deferred revenue is not comparable at all: US gap carries acquired contract balances at carryover value and IFRS 3 requires fair value. And fifth, from twenty twenty-seven, IFRS revenue sits inside a defined operating category while US statements have no mandated categories, so the subtotals themselves stop being like for like. Four notes will tell you almost all of this: revenue disaggregation, contract balances, significant judgements, and the accounting policy note. Read those four before you trust any revenue comparison.
If you only remember four of these differences, make it these four.
IFRS 18 changes the statement , not the number
And from January 2027 the two worlds drift further apart on presentation, not measurement. IFRS 18 replaces IAS 1 and splits the income statement into operating, investing and financing categories, with revenue landing in operating. It does not change a single number in IFRS 15 — the revenue you recognise is identical. But the face of the statement it lands on will look different from a US income statement, and IFRS 18 applies retrospectively, so 2026 comparatives are already being restated. Same revenue, different shaped statement.
If you prepare or reconcile both
So what do you actually do with this on Monday morning? If you work in a group that reports under both — a US parent with IFRS subsidiaries, or an IFRS parent with US ones — these four differences are your reconciliation lines. Start there. Then five concrete checks. First, pull your customer credit assessments: any customer sitting between fifty and about seventy-five per cent likely to pay is a real GAAP difference, not a rounding issue, because one framework books the revenue and the other books nothing. Second, read your IP licence terms and ask the one question that decides the period — is the customer getting access to something you will keep changing, or a fixed thing as it exists today. Third, check that your US policy elections on shipping and on sales taxes are actually documented and applied consistently, because IFRS gives you no election, so you need the assessment on file instead. Fourth, if you capitalise sales commissions, check whether any impairment was ever written back — under US GAAP it should not have been. And fifth, if you are heading into twenty twenty-seven, your IFRS revenue is moving into a defined operating category while your US statements are not, so your group reporting pack needs both shapes. And if you are reading someone else's accounts rather than preparing them, the same list tells you exactly which four notes to go and read first.
So let us put every one of those four onto a single contract, and price them.
Every difference, in euros
Now let's run all four differences through one single contract, so you can see each of them in money. The contract: a software licence allocated eighty-three thousand and seventy-seven euros, plus two years of support at thirty-six thousand nine hundred and twenty-three, five thousand euros of shipping on a hardware component, and a twelve thousand euro sales commission capitalised as a contract cost. Difference one, collectibility: with a sixty per cent customer, IFRS 15 reports a hundred and one thousand five hundred and thirty-nine euros in year one and ASC 606 reports zero. Difference two, licences: this licence is software, so it is functional and lands at a point in time under both — but if it were a brand licence instead, ASC 606 would call it symbolic and spread that eighty-three thousand across twenty-four months at three thousand four hundred and sixty-two a month, while IFRS 15's right-to-use test still recognises it upfront. That single reclassification moves forty-one thousand five hundred and thirty-three euros out of year one. Difference three, the five thousand of shipping: US GAAP lets you elect to call it a fulfilment cost, so it never appears as revenue, while IFRS 15 makes you assess it, and if it is a distinct service that five thousand becomes its own performance obligation. And difference four: if that twelve thousand commission is impaired and later recovers, IFRS 15 writes it back up and ASC 340-40 leaves it written down forever. One contract. Four differences. All four in euros.