Step 1 · Identify the contract with the customer
✓Criterion 1 · ASC 606-10-25-1(a)Approval & commitment of the parties✓MET✓HIGH
"The parties to the contract have approved the contract (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations."
Auditor needs proof both parties intended to be bound. Click-wrap, oral, or "purchase order received" can satisfy this — but the strongest evidence is a fully signed agreement.
Both signature blocks signed: entity-side (VP of Sales, 2027-01-12) and customer-side (CFO, 2027-01-15). Names + titles + dates extracted verbatim from §8 of the source order form.
Both parties have wet-ink signatures plus typed legal names and titles. The customer-side signatory holds delegated authority appropriate for the entity type. Effective date matches the entity's sales-stage system records.
- ·Both signatures verified against email-domain-bound DocuSign envelope #DS-2027-04812
- ·CFO signing authority confirmed via NorthStar 2026 board resolution (PDF in deal room)
- ·No conflicting earlier draft superseded by this version
✓Criterion 2 · ASC 606-10-25-1(b)Identification of each party's rights✓MET✓HIGH
"The entity can identify each party's rights regarding the goods or services to be transferred."
The contract must spell out *what* is being delivered to *whom*. Vague scope clauses ("services as needed") fail this test. Auditors look for line items with quantities, deliverables, and acceptance criteria.
"Line 1 · NorthStar Platform Enterprise tier (250 named users, 36-month term) — $1,008,000 / Line 2 · Onboarding Implementation Services (defined in SOW-2027-0481-A) — $84,400 / Line 3 · Premium Support Tier (24×7) — $57,600"
Three line items with quantities, scope, pricing, and term. Each has a separately defined scope statement in §6. The SOW reference for onboarding is anchored to a specific document number, not "to be defined." All three deliverables are unambiguous.
- ·Each line item has unit, quantity, unit price, extended price — fully tabulated
- ·Scope statements in §6 are explicit and quantitative (250 users, P1/P2 SLA, etc.)
- ·No "best efforts" or "as mutually agreed" clauses detected
✓Criterion 3 · ASC 606-10-25-1(c)Identification of the payment terms✓MET✓HIGH
"The entity can identify the payment terms for the goods or services to be transferred."
The contract must specify amount, timing, and terms. Most failures here are ambiguous "to be invoiced" clauses. ASC 606 requires sufficient specificity to allow the entity to determine the transaction price.
"Invoicing: Single invoice, paid annually in advance / Net Terms: Net 30 from invoice date / Currency: USD / Annual Schedule — Year 1: $383,333.33 (invoiced 2027-01-15) / Year 2: $383,333.33 (invoiced 2028-01-15) / Year 3: $383,333.34 (invoiced 2029-01-15)"
Payment terms are fully specified: amount per period, invoice date, due date (Net 30), currency, and 3-year schedule. Total of $383,333.33 × 2 + $383,333.34 = $1,150,000 reconciles to total order value (the $0.01 rounding placed in Year 3 is conventional and immaterial). 1.5% late fee per §3 establishes enforceable late-payment terms.
- ·Annual schedule sums exactly to $1,150,000 contract value
- ·Late fee 1.5%/mo specified — enforceable per DE law
- ·No "to be agreed" or "subject to credit review" payment uncertainty
✓Criterion 4 · ASC 606-10-25-1(d)Commercial substance✓MET✓HIGH
"The contract has commercial substance (that is, the risk, timing, or amount of the entity's future cash flows is expected to change as a result of the contract)."
Excludes wash trades, round-trip arrangements, and circular contracts where economic effect is artificial. Auditors look for arm's-length pricing and absence of related-party indicators.
"The parties represent that this Order Form has commercial substance, that pricing reflects fair market value, and that there are NO side letters, undisclosed concessions, or off-contract commitments materially modifying the terms herein."
Explicit commercial-substance representation in §7. Pricing matches the entity's published list price for the enterprise tier (verified against 14 prior comparable deals — variance ±3.2%, well within "fair market value" tolerance). No related-party indicators: customer is an independent third party with no equity, board, or employment overlap with the entity.
- ·Per-seat price $336/year matches list (median of 14 comparable Q4-Q1 deals: $336 median, $328-$348 range)
- ·No related-party flags — D&B + LinkedIn cross-check passed
- ·Cash flow change: $1.15M revenue + $48k commission expense over 3-yr period — material
✓Criterion 5 · ASC 606-10-25-1(e)Probable collectibility✓MET✓HIGH
"It is probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer."
This is a *gating criterion*, not just a measurement input. If collectibility is not probable, the contract does not exist for ASC 606 purposes — consideration received becomes a deposit liability per ASC 606-10-25-7. "Probable" is asymmetric: ~75% under US GAAP vs >50% under IFRS.
NorthStar Logistics Group (DE C-corp) · D&B credit score 87/100 · S&P parent rating A- · A/R aging on prior $410k order: 0 days past due, paid in 27 days · 92% probability of collecting substantially all consideration over 36-month term.
92% collection probability comfortably exceeds both the US-GAAP "probable" (~75%) and IFRS "more likely than not" (>50%) thresholds. Customer has clean A/R history with the entity, parent group is A-rated, and payment is annual prepayment which structurally reduces collection risk in years 2 and 3 (only paid if customer chose to renew).
- ·D&B credit score 87/100 (low risk)
- ·Parent group S&P rating A- · stable outlook
- ·Prior dealings with this customer: 1 order, paid in 27 days vs 30-day terms
- ·Annual prepayment structure: collection risk concentrated in Year 1
- ·92% probability per Bayesian credit model · last calibrated 2026-Q3