March 14, 2021
Financial Accounting Standards Board
Technical Director
File Reference No: 2020-1000
Submitted via email to: [email protected]
Re: Proposed Accounting Standards Update – Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
Dear Technical Director:
The Virginia Society of CPAs (VSCPA) Accounting & Auditing Advisory Committee has reviewed the proposed Exposure Draft (ED), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, issued by the Financial Accounting Standards Board (the Board). The VSCPA is a leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. The VSCPA membership consists of more than 13,000 individual members who actively work in public accounting, private industry, government and education. We acknowledge that the Board has issued the ED in an effort to increase stakeholder awareness to this particular topic as a part of its ongoing Codification Improvements project. The Committee appreciates the work the Board has undertaken on this effort and the opportunity to respond to the ED.
The Committee offers the following comments related to the ED:
Question 1: Should an entity be required to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606? If not, please explain why and what alternative would be appropriate.
Yes, the Committee feels that an entity should be required to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.
Question 2: Is the recognition guidance in the proposed amendments understandable and operable? If not, please explain why.
Yes, the Committee feels that the recognition guidance in the proposed amendments is understandable and operable.
Question 3: Is the measurement guidance in the proposed amendments understandable and operable? If not, please explain why.
Yes, the Committee feels that the measurement guidance in the proposed amendments is understandable and operable.
Question 4: The proposed amendments would not amend the existing guidance for other assets or liabilities that may arise from revenue contracts from customers in a business combination, such as customer-related intangible assets and contract-based intangible assets. Is the existing guidance on customer-related intangible assets and contract-based intangible assets, such as contracts with off-market terms, understandable and operable under the proposed amendments? If not, please explain why and what additional guidance would be necessary to make it operable.
Yes, the Committee believes that the existing guidance on customer-related intangible assets and contract-based intangible assets is understandable and operable under the proposed amendments.
Question 5: If the recognition or measurement guidance in the proposed amendments is inoperable or overly burdensome, are there any practical expedients that should be considered?
The Committee believes the recognition and measurement guidance in the proposed amendments is operable and is not overly burdensome.
Question 6: Would the proposed amendments result in financial reporting outcomes that are appropriate and meaningful for users of financial statements? Please explain why or why not.
The Committee believes that the proposed amendments would result in financial reporting outcomes that are both appropriate and meaningful for users of financial statements. Specifically, these amendments clarify important inconsistencies regarding business combinations with contracts that were accounted for under Topic 606.
Question 7: The scope of the proposed amendments would include contract assets and contract liabilities from other contracts that apply the provisions of Topic 606, such as contract liabilities from the sale of nonfinancial assets within the scope of 610-20. Should the proposed amendments be applied to contracts with customers that also are accounted for in accordance with Topic 606? If not, please explain why.
The Committee agrees that the proposed amendments should be applied to contracts with customers that also are accounted for in accordance with Topic 606.
Question 8: The proposed amendments would require no incremental disclosures. Should other disclosures be required; for example, are additional disclosures needed that would provide investors with the information necessary to distinguish between acquired revenue contracts and originated revenue contracts? If yes, please explain why and provide the additional disclosures that should be required.
The Committee has no recommended incremental disclosures.
Question 9: Should the proposed amendments be applied on a prospective basis? If not, what transition method would be more appropriate and why?
The Committee believes that the proposed amendments should be available on a prospective basis.
Question 10: How much time would be needed to implement the proposed amendments? Should entities other than public business entities be provided with an additional year to implement the proposed amendments? Please explain why or why not.
The Committee would recommend allowing a full year beyond when the Board adopts the proposed amendments to allow organizations sufficient time to prepare policies and train their staff. Entities other than public business entities should be provided with an additional year to mitigate the cost needed for compliance with the amendments.
Question 11: Is the early application requirement appropriate as proposed, or should an entity not be required to apply the proposed amendments to all prior business combinations that occurred since the beginning of the annual period if the proposed amendments are applied in the interim period? Please explain why or why not.
The Committee believes that the early application requirement is appropriate as proposed. Allowing an entity to selectively apply the amendment in a fiscal year would lead to confusion and potential manipulation.
Question 12: IFRS Standards on business combinations contain guidance similar to what is currently in Topic 805. The proposed amendments would create a difference between IFRS Standards and Topic 805 for measuring contract assets and contract liabilities acquired in business combination. Would differences in that area of the guidance create additional costs or complexity for entities or users of financial statements? Please explain why or why not.
The Committee believes while additional complexity could be the case, additional costs will not be incurred by the users of the financial statements as these amendments only create more clarity and less confusion.
Again, the Committee appreciates the opportunity to respond to this ED. Please direct any questions or concerns to VSCPA Vice President, Advocacy Emily Walker, CAE, at [email protected] or (804) 612-9428.
Sincerely,
Natalya Yashina, CPA
2020–2021 Chair
VSCPA Accounting & Auditing Advisory Committee
VSCPA Accounting & Auditing Advisory Committee:
Natalya Yashina, CPA — Chair
Tamara Greear, CPA —Vice Chair
Zach Borgerding, CPA
Michael Cahill, CPA
George Crowell, CPA
Scott Davis, CPA
Bo Garner, CPA
M. James Hartson Jr., CPA
Josh Keene, CPA
Zach Morris, CPA
Michael Phillips, CPA
Charlie Valadez, CPA