How ASU No. 2021-08 Changes the Treatment of Deferred Revenue During an Acquisition– November 15, 2021 by Beth Reho

Your acquisition has deferred revenue, which you know how to treat. But guess what? The accounting rules have changed! 

Earlier this year, we posted a blog about where deferred revenue “goes” during an acquisition, focusing on the complex process of writing down that revenue as of the date of the acquisition. Fast forward to October 28, 2021, when FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers — and the deferred revenue (contract liability) is back. 

With the ability to early adopt this standard, companies that acquire deferred revenue no longer have to write the amount up to fair value as of the acquisition date. 

>> Read “Where Did the Deferred Revenue Go in Your Acquisition?”

The new ASU impacts the accounting for contract assets as well as contract liabilities acquired in a business combination. As a reminder, a contract asset is an entity's right to consideration in exchange for goods or services the entity has transferred to a customer. A contract liability is an entity's obligation to transfer goods or services to a customer for which the entity has received consideration from the customer (deferred revenue).

ASU 2021-08 requires contract assets and contract liabilities to be accounted for as if they (the acquirer) entered into the original contract at the same time and same date as the acquiree. This is a shift from existing guidance, which required the acquirer to recognize contract assets and contract liabilities at their fair value as of the acquisition date.

What this means for an acquirer of a business is that the deferred revenue will not disappear. It will remain on the books as of the acquisition date similar to the treatment that would have occurred had the acquirer entered into the original contract.  

However, this new ASU does not simply infer that the acquirer would carryover the historical balances from the acquiree’s accounting records. The acquirer would still need to consider the reasonableness of the acquiree’s application of ASC 606 and if the acquirer’s accounting policies are different (for example, applications of practical expedients). 

ASU 2021-08 is effective for privately held companies with fiscal years beginning after December 15, 2023, with early adoption permitted. The ASU should be applied prospectively to all business combinations in the year of adoption.  

Contact Beth Reho at or a member of your service team to discuss this topic further.

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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.