The FASB has issued an Exposure Draft that is intended to address diversity in practice related to whether and how to record deferred revenue in a business combination. Current GAAP requires that a deferred liability be recorded in a business combination when the acquirer assumes a legal obligation. This differs from the recognition principles for contract liabilities arising from contracts with customers under ASC Topic 606 – Revenue from Contracts with Customers. The proposed guidance would require an acquiring entity to recognize deferred revenue if there is an unsatisfied performance obligation for which the acquired entity has been paid. This change would be applied prospectively. The proposal did not include an effect date or early adoption provisions.

At the same time, the FASB issued an Invitation to Comment on measurement and other topics related to contracts with customers under ASC Topic 805 – Business Combinations. Specific topics include payment terms and their effect on subsequent revenue recognition and the consideration of costs to fulfill a performance obligation when measuring the fair value of a contract liability. Comments on both the Exposure Draft and the Invitation to Comment are due by April 30, 2019.

The full text of the Exposure Draft is available here.

The full text of the Invitation to Comment is available here.

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