Simplification May Not be so Simple

[...]there would be no difference in the valuation of contract assets or contract liabilities for an entity that is acquired (or not acquired) in a business combination. The exposure draft referred to the conflicting guidance of recognizing deferred revenue only when a legal obligation exists under Emerging Issues Task Force (EITF) 01-03 (FASB/EITF, 2001, "Accounting in a Business Combination for Deferred Revenue of an Acquiree," https:// bit.ly/40kbzoP), or under Financial Accounting Concepts (FAC) 6 (FASB/ FAC, 1985, Elements of Financial Statements, https://bit.ly/40gKOkV), where liabilities may include obligations expected to be performed under business practices. ASU 2021-08 made the following amendments to ASC 805: * Contract assets and contract liabilities acquired in a business acquisition should generally be recorded using the carrying values of the acquired company that were recognized under ASC 606. * Contract liabilities include legal liabilities as well as obligations that are common business practices. Under the previous guidance of ASC 805, no contract liability would be recognized by the acquirer, whereas the new standard requires the assumption of the acquiree's obligation (https://bit. ly/3K7Yl90). * Practical expedients are provided for the following situations wherein the acquirer cannot use the acquiree's carrying values: a. For contracts that were modified before the acquisition date, an acquirer may reflect the aggregate effect of all modifications that occur before the acquisition date when: 1. identifying the satisfied and unsatisfied performance obligations 2. determining the transaction price 3. allocating the transaction price to the satisfied and unsatisfied performance obligations. b. For all contracts, for purposes of allocating the transaction price, an acquirer may determine the standalone selling price at the acquisition date (instead of the contract inception date) of each performance obligation in the contract (ASU 2021-08, p. 8).