FASB aims to clarify accounting for acquired revenue contracts

The Financial Accounting Standards Board has issued a proposed Accounting Standards Update that it hopes will create more consistency around how businesses account for revenue contracts with customers that they have acquired.

Current GAAP does not provide specific guidance on contract assets and liabilities that are accounted for under Topic 606, “Revenue from Contracts with Customers,” and FASB reported that some stakeholders that certain related recognition and timing issues were unclear.

The proposed ASU would provide guidance on those issues in Topic 805, “Business Combinations.” Among other things, it would require an acquiring business to recognize and measure contract assets and liabilities in accordance with Topic 606 – which would generally mean the acquirer would account for them consistently with how they were accounted for in the acquiree’s financial statements.

The board is looking for stakeholder feedback by March 15, 2021.