![]() ![]() While those fair values should not change as a result of the new guidance, the acquirer will need to consider how to incorporate working capital amounts that will change under the new guidance into its intangible asset valuation models. This may be less critical for goodwill that is subsumed into an existing reporting unit at the acquirer to the extent there is an existing cushion between the reporting unit’s fair value and its carrying amount.Įntities will also need to be careful in how they incorporate the impact of the new guidance into their valuation of other intangible assets in acquisition accounting. In particular, if the goodwill is included in a standalone reporting unit upon acquisition, an entity will need to consider events or circumstances that could more likely than not reduce the fair value of the reporting unit below its carrying amount between annual tests (i.e., triggering events). However, as those contract liabilities are recognized into revenue post-acquisition, the net book value increases, which could create challenges for subsequent goodwill impairment tests under ASC 350 unless the fair value of the business increases during that time. For example, when contract liabilities are recognized for a contract to license symbolic intellectual property over a period of time with an upfront payment (as illustrated in Example 3 in the Appendix) and additional goodwill is recognized, there is initially no net impact from the new guidance on the net book value of the acquired business. Reporting entities will need to consider the impact of this outcome when assessing goodwill balances for impairment subsequent to an acquisition. errors in the ASC 606 accounting of the acquiree prior to the business combination.differences in estimates between the acquirer and acquiree (e.g., estimates of variable consideration or measure of progress) or.differences in the acquirer’s and acquiree’s revenue recognition accounting policies.situations when the acquiree has not applied ASC 606 (e.g., prepared financial statements under IFRS, statutory reporting requirements, or other financial reporting frameworks).However, as the Board noted in paragraphs BC33 and BC43 of the Basis for Conclusions, there may be differences due to the recording of off-market contract assets or liabilities (see discussion on off-market contracts in Other intangible assets or liabilities) as well as differences arising from: The new guidance generally results in the amount of revenue recognized by the acquirer subsequent to the acquisition date to be the same as the amount that would have been recognized by the acquiree absent the business combination, or that would be recognized for identical contracts entered into by the acquirer. However, there may be differences, as described further below. The revenue recorded by the acquirer post-acquisition will now more closely align with the acquiree’s revenue recognition prior to the acquisition, as well as the acquirer’s revenue recognition on similar contracts entered into after the acquisition. The FASB acknowledged that there will likely be an increase in the acquired contract liabilities balance as a result of the new guidance, resulting in a corresponding increase in the subsequent revenue recognized by the acquirer. The recognition and measurement of those contract assets and contract liabilities will likely be comparable to what the acquiree has recorded on its books under ASC 606 as of the acquisition date. Under the new guidance ( ASC 805-20-30-28), the acquirer should determine what contract assets and/or contract liabilities it would have recorded under ASC 606 (the revenue guidance) as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquiree. Transfers and servicing of financial assets Revenue from contracts with customers (ASC 606) Loans and investments (post ASU 2016-13 and ASC 326) Investments in debt and equity securities (pre ASU 2016-13) Insurance contracts for insurance entities (pre ASU 2018-12) Insurance contracts for insurance entities (post ASU 2018-12) IFRS and US GAAP: Similarities and differences Business combinations and noncontrolling interestsĮquity method investments and joint ventures
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