FASB addresses deferred revenue in business combinations

February 14, 2019

Published: Journal of Accountancy

The recognition and measurement of deferred revenue in business combinations would change under a new proposal issued Thursday by FASB.

FASB issued a proposed Accounting Standards Update (ASU) and an Invitation to Comment, and is seeking comments on both documents by April 30. The board is addressing diversity in practice arising from confusion on whether and how to record deferred revenue in a business combination.

The proposal clarifies when acquiring organizations should recognize a contract liability in a business combination. According to the proposal, an organization should recognize deferred revenue from acquiring another organization if there is an unsatisfied performance obligation for which the acquired organization has been paid by the customer.

In the Invitation to Comment, FASB asks for feedback and ideas on measurement and two other issues related to acquiring contracts in business combinations:

– Payment terms and their effect on the subsequent revenue recognized.

– Costs to fulfill a performance obligation in measuring the fair value of a contract liability for a revenue contract.

The Emerging Issues Task Force worked with FASB to develop the proposed ASU and the Invitation to Comment.

https://www.journalofaccountancy.com/news/2019/feb/fasb-business-combinations-deferred-revenue-201920655.html

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