FASB proposed a brand new accounting commonplace Tuesday that’s designed to extend consistency within the accounting for income contracts with prospects acquired in a enterprise mixture.
The proposed Accounting Standards Update would supply steerage on Matter 805, Enterprise Combos, that will require an buying entity to acknowledge and measure contract belongings and contract liabilities acquired in a enterprise mixture in accordance with Matter 606, Income From Contracts With Clients.
Usually, this modification would end in an acquirer recognizing and measuring the acquired contract belongings and contract liabilities persistently with how they had been acknowledged and measured within the acquired entity’s monetary statements earlier than the acquisition.
The proposal wouldn’t have an effect on the accounting for different belongings or liabilities which will come up from income contracts from prospects in a enterprise mixture, equivalent to customer-related intangible belongings and contract-based intangible belongings.
Present GAAP gives steerage on when to acknowledge and how you can measure belongings and liabilities in a enterprise mixture however doesn’t present steerage particular to contract belongings and contract liabilities arising from income contracts with prospects and different, comparable contracts which are accounted for in accordance with Matter 606.
Some stakeholders instructed FASB that present GAAP is unclear on how an acquirer ought to acknowledge a contract legal responsibility from a income contract with a buyer acquired in a enterprise mixture after the adoption of Matter 606.
As well as, below present apply, the timing of fee of a income contract could subsequently have an effect on the post-acquisition income acknowledged by the acquirer.
Feedback on the proposal might be made by March 15 on FASB’s website.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.