IMA Financial Reporting Committee comment letter on Proposed ASU No. 2019-300, Business Combinations (Topic 805): Revenue from Contracts with Customers—Recognizing an Assumed Liability, a consensus of the FASB Emerging Issues Task Force, and Invitation to Comment, Measurement and Other Topics Related to Revenue Contracts with Customers under Topic 805
Monday, May 13, 2019
The IMA Financial Reporting Committee (FRC) issued a comment letter in response to Proposed Accounting Standards Update (ASU) No. 2019-300, Business Combinations (Topic 805): Revenue from Contracts with Customers—Recognizing an Assumed Liability, a consensus of the FASB Emerging Issues Task Force, and Invitation to Comment (ITC), Measurement and Other Topics Related to Revenue Contracts with Customers under Topic 805. In these interrelated releases, the FASB seeks input on proposed amendments to current guidance regarding an acquirer’s accounting for the contract assets and liabilities under Topic 606, Revenue from Contracts with Customers, of an entity acquired in business combination within the scope of Topic 805, Business Combinations. Generally, Proposed ASU No. 2019-300 addresses the recognition of an acquiree’s contract assets and liabilities; the ITC addresses the measurement of these items.
In its response, the FRC provides its assessment of the proposed guidance, including the following:
- It is impractical for the FASB to address the recognition issues in the proposed ASU separately from the measurement issues in the ITC;
- Predominantly, Committee members endorse the FASB’s consideration of a scope exception to Topic 805 that would exclude assets and liabilities that arise from contracts with customers from the general recognition and measurement guidance in Topic 805. This approach reflects the conceptual differences that distinguish Topic 606 and Topic 805;
- Although the above approach is the predominant view, several FRC members expressed a preference for an approach similar to one of the alternatives exposed in the ITC (paragraph 2.13).