FASB, Financial Accounting Standards Board.

Project Objective and Background

Objective:

The issuance and adoption of Topic 606, Revenue from Contracts with Customers, has raised questions about what definition should be applied in the recognition of a contract liability under Topic 805 for an assumed liability in a revenue contract for a business combination that occurs after the adoption of Topic 606. Given the diversity of potential views, the objective of this project is to narrow the diversity on the definition that should be used in the recognition of a contract liability under Topic 805 for a revenue contract acquired after an entity has adopted Topic 606.
 

Background:

Topic 805, Business Combinations, provides accounting guidance for business combinations. In applying the acquisition method, the acquirer recognizes identifiable assets acquired and liabilities assumed in the business combination and measures those assets and liabilities at fair value. The criteria for an identifiable asset or liability to be recognized in the business combination is that it must meet the definition of an asset or liability in the FASB Concepts Statements (paragraphs 805-20-25-1 through 25-3). Stakeholder feedback has indicated that for business combinations that occur before the adoption of Topic 606, entities often use a legal obligation definition for recognition of a liability under Topic 805 for deferred revenue. However, Topic 606 has introduced the performance obligation definition for revenue contracts with customers. The FASB has become aware of diversity in views on the definition that should be used for recognition for business combinations after Topic 606 has been adopted.

Exposure Documents

Exposure Draft:

On February 14, 2019, the FASB issued proposed Accounting Standards Update, Business Combinations (Topic 805): Revenue from Contracts with Customers—Recognizing an Assumed Liability (a consensus of the FASB Emerging Issues Task Force). The comment letter deadline was April 30, 2019.   
 
Download the proposed Accounting Standards Update, Business Combinations (Topic 805): Revenue from Contracts with Customers—Recognizing an Assumed Liability (a consensus of the FASB Emerging Issues Task Force).

• Read the comment letters on the proposed Accounting Standards Update.
• Read the comment letter summary on the proposed Accounting Standards Update.

The proposed Accounting Standards Update was issued concurrently with a FASB Invitation to Comment (ITC), Measurement and Other Topics Related to Revenue Contracts with Customers under Topic 805. This ITC solicited input about measurement of contract liabilities from revenue contracts with customers acquired in a business combination and other topics related to the accounting for revenue contracts with customers acquired in a business combination. The comment letter deadline was April 30, 2019.
 
Download the Invitation to Comment, Measurement and Other Topics Related to Revenue Contracts with Customers under Topic 805.

• Read the comment letters on the Invitation to Comment.
• Read the comment letter summary on the Invitation to Comment

Media Releases and Educational Materials

Read the press release on the proposed Accounting Standards Update.

Board Decisions*

Decisions Reached at Last Meeting (July 31, 2019):

At the July 31, 2019 Board meeting, the Board decided to subsume recognition of an assumed liability from a revenue contract in a business combination into the Board’s research project, Recognition and Measurement of Revenue Contracts with Customers under Topic 805. The Board decided to not eliminate any of the alternatives proposed in the ITC.

Board Meeting Materials and Information*

The Board meeting minutes, handouts, and videos are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

The following are links to the minutes for each meeting.  To view Board meetings and handouts from the past 90 days, click here.
 

July 31, 2019*	Board Meeting—The Board decided to subsume recognition of an assumed liability from a revenue contract in a business combination into the Board’s research project, Recognition and Measurement of Revenue Contracts with Customers under Topic 805.
June 13, 2019	EITF Meeting—The Task Force decided not to affirm its consensus-for exposure as a consensus. The Task Force recommended that the issues in the proposed Update and related ITC be considered holistically.
October 10, 2018	Board Meeting—The Board ratified the consensus-for-exposure reached at the September 27, 2018 EITF meeting. In addition to the consensus-for-exposure being ratified by the Board, the FASB chairman authorized the staff to prepare a Discussion Paper in the form of an Invitation to Comment (separate from the proposed Update), which will be issued concurrently with the proposed Update.
September 27, 2018	EITF Meeting—The Task Force affirmed its consensus-for-exposure on the recognition Issue and recommended to the Board that the staff issue an Invitation to Comment to solicit input about measurement and other topics discussed by Task Force members.
June 7, 2018	EITF Meeting—The Task Force reached a consensus-for-exposure on the recognition and measurement of an assumed liability from a revenue contract with a customer.
March 28, 2018	Board Meeting—The Board added the Recognition under Topic 805 for an Assumed Liability in a Revenue Contract project to the EITF agenda.

Next Steps*

This issue has been removed from the EITF agenda and subsumed into the Board’s research project, Recognition and Measurement of Revenue Contracts with Customers under Topic 805.

Contact Information*

David Challen
EITF Coordinator
dchallen@fasb.org
 
Ryan Carter
Project Manager
rjcarter@fasb.org

Amy Scheb
Postgraduate Technical Assistant
ascheb@fasb.org