Executive Summary

Under ASC 606 and IFRS 15, revenue is recognized when (or as) an entity satisfies a performance obligation by transferring control of a promised good or service to a customer.

Although neither standard explicitly defines a “Service Start Date” or an “Initial Performance Event,” both standards implicitly rely on this concept for service-based arrangements.

In practice, the service start date represents the earliest point at which performance can begin and therefore serves as the initial performance event for revenue recognition.

This whitepaper consolidates authoritative guidance, practical interpretation, journal entry illustrations, and edge-case scenarios to provide a comprehensive, audit-ready framework applicable across industries and systems.

1. Absence of an Explicit Definition in the Standards

Neither ASC 606 nor IFRS 15 explicitly defines: – Service Start Date – Initial Performance Event

However, both standards clearly define when performance obligations begin to be satisfied, which functionally establishes the service start date.

ASC 606-10-25-23 / IFRS 15.31 > An entity shall recognize revenue when (or as) it satisfies a performance obligation by transferring control of a promised good or service to a customer.

For services, this condition is met only once the service has commenced.

2. Core Principle: Satisfaction of Performance Obligations

For service-based performance obligations, satisfaction generally occurs over time, because the customer simultaneously receives and consumes the benefits as the entity performs.

ASC 606-10-25-27(a) / IFRS 15.35(a)

This implies: – Performance cannot occur before the service begins – Revenue recognition cannot start before the service start date

Thus, the service start date marks the initial performance event.

3. Why Revenue Cannot Be Recognized Before Service Start Date

Even if: – The contract is signed – The invoice is issued – Payment is received

Revenue recognition is prohibited before the service start date because: – No control has transferred – No benefit has been delivered – The performance obligation remains unsatisfied

Accounting Treatment Prior to Service Start

Amounts billed or collected before the service start date must be recognized as: – Contract Liability (Deferred Revenue)

4. Measurement of Progress Begins at Service Start Date

For performance obligations satisfied over time, progress must faithfully depict performance.

ASC 606-10-25-31 / IFRS 15.39

Key implications: – Progress cannot be measured before performance begins – The measurement period starts on the service start date

5. Journal Entry Illustrations (Initial Performance Event Accounting)

Under ASC 606 and IFRS 15, the Initial Performance Event (for example, Service Start Date) represents the point at which the entity first stands ready to perform and obtains enforceable rights and obligations under the contract. This event is not driven by billing, but by the transfer of control related to the performance obligation.

At the Initial Performance Event, the appropriate accounting entry reflects the establishment of a contract position, not revenue recognition and not customer invoicing.

Initial Performance Event – Accounting Entry – Dr. Contract Asset
– Cr. Contract Liability (Performance Obligation Liability)

This entry establishes the performance obligation balance on the balance sheet and represents the entity’s obligation to satisfy future performance, while recognizing that enforceable rights under the contract now exist.

Billing-related journal entries (Accounts Receivable, Deferred Revenue) and subsequent reclassification entries are separate events and should be analyzed independently from the Initial Performance Event.

Scenario Overview

• Contract value: $120,000
• Service period: 12 months
• Monthly revenue: $10,000
• Invoice issued before service start

Event 1: Billing Event (Accounts Receivable)

At Invoice Issuance

Dr Accounts Receivable        120,000
   Cr Deferred Revenue        120,000

Event 2: Revenue Management Reclassification

At Performance Obligation Recognition

Dr Deferred Revenue           120,000
   Cr Contract Asset          120,000

Event 3: Monthly Revenue Recognition

Each Month During Service Period

Dr Contract Asset              10,000
   Cr Revenue                  10,000

6. Common Service Scenarios

6.1 Time-Based Subscriptions or Support

• Contract term: January 1 – December 31
• Service start date: January 1

Revenue is recognized ratably starting January 1. Any billing prior to that date is deferred.

6.2 Delayed Service Commencement

• Contract signed: January 1
• Service starts: March 1
• Invoice issued: January 15

January–February: – No revenue recognition – Deferred revenue maintained

Revenue begins only on March 1.

6.3 Stand-Ready Obligations

Examples: – Hosting services – Customer support – Warranty-type services

ASC 606-10-25-18 / IFRS 15.BC160

Performance begins when the entity is available to provide services, not when the customer consumes them.

Service start date = date the entity stands ready.

7. Edge Cases and Complex Scenarios

7.1 Free Trial Periods

• Trial provided at no charge
• Paid subscription begins after trial

Treatment: – Trial period may represent a separate performance obligation if it provides distinct value – Revenue recognition for paid services begins only after the trial ends

7.2 Ramp-Up or Gradual Enablement

• Services start at limited capacity
• Full functionality delivered later

Treatment: – Service start date is when the customer can first benefit – Progress measurement may need adjustment to reflect uneven delivery

7.3 Customer-Delayed Activation

• Service is available
• Customer delays activation

Treatment: – Revenue may still begin if the entity is stand-ready – No deferral solely due to customer inaction

7.4 Administrative Delays vs Contract Modifications

• Data correction or scheduling error → Revision
• Renegotiated service dates → Contract modification

Only modifications require reassessment under ASC 606 / IFRS 15.

7.5 Early Terminations and Refunds

• Termination before service completion
• Refund obligations arise

Treatment: – Revenue recognized only for services provided – Remaining deferred revenue refunded or reversed

8. Audit and Control Considerations

Auditors typically expect: – Clear definition of service start date – Alignment between contract terms, billing, and revenue – Evidence that no revenue is recognized before performance begins

Service start date is a key audit trigger for testing revenue cut-off.

9. Summary and Key Takeaways

• Service start date is not explicitly named in ASC 606 or IFRS 15
• It is implicitly required as the point where performance begins
• Revenue recognition before service start is prohibited
• Billing before service start results in deferred revenue
• Edge cases require judgment but must align with control transfer principles

10. Conclusion

Under ASC 606 and IFRS 15, the service start date functions as the Initial Performance Event for service-based performance obligations. While not explicitly defined, its role is central to compliant revenue recognition, measurement of progress, billing alignment, and audit defensibility. Proper identification and governance of the service start date is therefore critical for accurate and compliant financial reporting.

Revenue Management applications can use the service start date as an Initial Performance Event, in accordance with ASC 606 and IFRS 15 standards.

Organizations can now record right-to-bill entries for service-related performance obligations on the actual service commencement date, rather than waiting for billing or satisfaction events.

The system determines the accrual date by identifying the earliest of the Initial Performance Event date, billing event, or satisfaction event across all relevant promises within the performance obligation. This allows users to specify service start date for recording the performance obligation’s accrual entry on the balance sheet.