FASB Issues Guidance on Accounting for Revenue Contracts Acquired in a Business Combination

The FASB has issued Accounting Standards Update (ASU) No. 2021-08, Accounting for Contract Assets and Contract Liabilities From Contracts With Customers, which amends the guidance in ASC 805 to require that “an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.” The Board’s objective in issuing the ASU is to “improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the following:

1. Recognition of an acquired contract liability
2. Payment terms and their effect on subsequent revenue recognized by the acquirer.”

For more information, see the press release on the FASB’s Web site.