United States

Business combinations: Recognition and measurement of deferred revenue


There currently is diversity in practice regarding the circumstances in which an entity should recognize a contract liability from a contract with a customer within the scope of Topic 606, “Revenue from Contracts with Customers,” of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification that is acquired in a business combination. In response to this diversity in practice, the FASB recently issued a proposed Accounting Standards Update (ASU), Business Combinations (Topic 805): Revenue from Contracts with Customers – Recognizing an Assumed Liability (a consensus of the FASB Emerging Issues Task Force). If finalized, the proposed ASU would require that an acquirer recognize a liability assumed in a business combination from a contract with a customer if that liability represents an unsatisfied performance obligation under Topic 606 for which the acquiree has received consideration (or the amount is due) from the customer.

The FASB also concurrently issued an Invitation to Comment, Measurement and Other Topics Related to Revenue Contracts with Customers under Topic 805, to seek stakeholder feedback prior to issuing a proposed ASU to provide additional guidance on the measurement of contract liabilities from revenue contracts with customers acquired in a business combination. The Invitation to Comment asks stakeholders to provide feedback on two major issues related to acquiring contracts with customers in business combinations:

  • Payment terms and their effect on the subsequent revenue recognized
  • Costs to fulfill a performance obligation in measuring the fair value of a contract liability for a revenue contract under Topic 805

The proposed ASU and Invitation to Comment are available for comment until April 30, 2019.