FASB proposes changes in accounting for deferred revenue in business combinations

The Financial Accounting Standards Board issued a proposed accounting standards update Thursday on the recognition and measurement of deferred revenue in business combinations.

The proposal comes after FASB heard feedback from some of its constituents that companies are accounting for deferred revenue in a business combination in different ways. FASB’s Emerging Issues Task Force took up the issue and worked with the board to come up with a proposed standards update, along with a formal invitation to comment document.

The proposed update would clarify when acquiring organizations should recognize a contract liability in a business combination. Under the proposal, an organization should recognize deferred revenue from acquiring another organization if there’s an unsatisfied performance obligation for which the acquired organization has been paid by the customer. The standards update would resolve an issue that came up for companies applying FASB's new revenue recognition standard.

The invitation to comment asks for feedback and ideas on measurement and other issues related to acquiring contracts with customers in business combinations, including the payment terms and their effect on the subsequent revenue recognized, along with the costs of fulfilling a performance obligation in measuring the fair value of a contract liability for a revenue contract.

FASB is asking for input on both the proposed accounting standards update and the invitation to comment by April 30, 2019.

FASB, GASB and FAF logos on the wall at headquarters in Norwalk, Connecticut
FASB, GASB and FAF logos on the wall at headquarters in Norwalk, Connecticut

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