The FASB has issued an Exposure Draft for public comment that is intended to reduce inconsistency and diversity in practice in the accounting for revenue from 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 Exposure Draft would require 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.  This differs from the current requirements to record these amounts at fair value.

The effective date of the Exposure Draft would be determined after feedback has been considered.  Entities would apply the amendments prospectively to business combinations occurring on or after the effective date. Early adoption would be permitted, including adoption in an interim period. Comments on the Exposure Draft are due by March 15, 2021.

The full text of the Exposure Draft is available here.

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