FASB Proposes Improvements to Recognizing and Measuring Deferred Revenue in Business Combinations

 – February 15, 2019
FASB Proposes Improvements to Recognizing and Measuring Deferred Revenue in Business Combinations

The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU) and Invitation to Comment (ITC) on the recognition and measurement of deferred revenue in business combinations. Stakeholders are encouraged to review and provide input on the proposed ASU and ITC by April 30, 2019.

Stakeholders observed that diversity exists on whether and how to record deferred revenue in a business combination. The Emerging Issues Task Force (EITF) worked with the FASB to develop a proposed standard and an Invitation to Comment to solicit feedback on these issues.

The proposed ASU clarifies when acquiring organizations should recognize a contract liability in a business combination. In 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. 

The ITC asks stakeholders to provide feedback and ideas on measurement and other issues related to acquiring contracts with customers in business combinations:
  1. Payment terms and their effect on the subsequent revenue recognized, and
  2. Costs to fulfill a performance obligation in measuring the fair value of a contract liability for a revenue contract.