Comment: using ASC 606 for acquired revenue contracts


On March 15, Grant Thornton submitted a comment letter to the FASB on the proposed ASU, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The proposed amendments would require companies to recognize revenue contracts acquired in a business combination using the “performance obligation” concept introduced in ASC 606 rather than the “legal obligation” approach using fair value under ASC 805.

The proposed amendments would essentially require companies to carry over the acquiree’s contract assets and contract liabilities, subject to adjustments for

  • Differences in the acquirer’s and acquiree’s revenue accounting policies
  • Differences between the acquirer’s and acquiree’s estimates
  • Errors in how the acquiree applies the guidance in ASC 606

Although the firm supports the fair value measurement principle in ASC 805, we support the proposed ASU because:



  • The proposed amendments would reduce the cost and complexity of the existing guidance, making it easier to apply as well as to audit.
  • The amendments would generally result in companies accounting for acquired revenue contracts consistently with revenue contracts that they generate after the business combination, which would provide financial statement users with more decision-useful information.
  • Download our letter to read our comments in full, including our responses to the FASB’s questions.



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