The FASB has issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU is intended to reduce inconsistency and diversity in practice in the accounting for revenue contracts with customers acquired in a business combination.

Under current practice, two contracts with identical performance obligations but different payment terms could have different revenue in the post-acquisition period.   The ASU requires that the acquirer recognize and measure contract assets and liabilities in accordance with Topic 606. In most cases, this will result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. The ASU also includes practical expedients related to modifications and the determination of standalone selling price in acquired revenue contracts.

The ASU is effective for public business entities for fiscal years starting after December 15, 2022 and for all other entities, for fiscal years starting after December 15, 2023.   Early adoption is permitted. The amendments in this ASU should be applied prospectively to business combinations occurring on or after the effective date of the ASU. If the initial application is at an interim date, the ASU should be retrospectively applied to all business combinations in that fiscal year.

The full text of ASU 2021-08 is available here. 

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