Accounting for acquired revenue contracts with customers
FINANCIAL REPORTING INSIGHTS |
Authored by RSM US LLP
The Financial Accounting Standards Board (FASB) recently issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to address diversity in practice on how an acquirer should recognize and measure revenue contracts acquired in a business combination.
Under current GAAP, an acquirer recognizes contract assets acquired and contract liabilities assumed in a business combination at fair value at the acquisition date. ASU 2021-08 will require an acquirer to instead recognize and measure contract assets acquired and contract liabilities assumed in a business combination in accordance with FASB Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts. To achieve this, the acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and assumed contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements before the acquisition. However, if the acquirer is unable to assess or rely on the acquiree’s application of ASC 606, the acquirer would need to evaluate and apply ASC 606 to the acquired contracts.
ASU 2021-08 also applies to contract assets and contract liabilities from other contracts that apply the provisions of ASC 606, such as contract liabilities from the sale of nonfinancial assets within the scope of ASC 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets. However, ASU 2021-08 does not affect the accounting for other assets or liabilities that may arise from revenue contracts with customers in a business combination, such as customer-related intangible assets and contract-based intangible assets.
For public business entities, ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all other entities, ASU 2021-08 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The ASU should be applied prospectively to business combinations occurring on or after the effective date. Early adoption of ASU 2021-08 is permitted, including in an interim period. An entity that early adopts in an interim period should apply the amendments (a) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (b) prospectively to all business combinations that occur on or after the date of initial application.
Call us at +1 213.873.1700, email us at email@example.com or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by RSM US LLP and originally appeared on 2021-10-29.
2021 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.