Revenue recognition

In professional services revenue recognition follows standards like IFRS 15 and ASC 606, which require recognizing revenue based on transfer of control of deliverables to the client. Two main methods prevail: at point in time (on completion) and over time (based on progress, percentage of completion).

T&M typically follows the over-time model with revenue recognized as hours are delivered. Fixed Price may follow percentage-of-completion on milestones or recognition at acceptance. A modern PSA automates revenue recognition, generating consistent entries for accruals, deferrals and WIP, avoiding errors and supporting audits.

The recognition method chosen has consequences well beyond the accounts, because it determines when a delay becomes visible. Under an over-time model a project that slips shows up immediately as lower recognised revenue; under recognition at acceptance the same slip is invisible until the milestone moves, by which point the quarter is usually already committed elsewhere.

Reconciliation is where most of the effort actually goes, and it is largely avoidable. When hours, milestones and invoices live in the same system, the accounting entries derive from data that has already been approved once; when they live in three, somebody spends the first week of every month proving that three sets of numbers describe the same work. That week is a recurring cost that rarely appears in any software comparison.