In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”).
This standard amends the existing guidance under ASC 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations. Under this standard, the acquirer of a business is expected to recognize and measure acquired contract assets and contract liabilities as if the acquirer entered into the original contract on the same date with the same terms in accordance with ASC 606 rather than at fair value on the date of acquisition. This update is effective for fiscal years beginning after December 15, 2022 and for interim periods within that year. We adopted this standard on October 1, 2023 using the prospective method. ASU 2021-08 impacts how we account for business combinations completed after its adoption.
In December 2019, the FASB issued Accounting Standard Update No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This update is effective for fiscal years beginning after December 15, 2020 and for interim periods within that year. Early adoption is permitted. We adopted this standard on October 1, 2021 with immaterial impact on our Consolidated Financial Statements.
About New Standards Disclosures
New accounting standards disclosures describe recently adopted pronouncements and those not yet effective, along with management's assessment of their expected impact. This section provides an early warning system for upcoming changes to how a company reports its financial results, often years before the new rules take effect.
Key signals: when management describes a not-yet-adopted standard's impact as "material" or "still being evaluated," it signals potential significant changes to reported metrics upon adoption. Watch for standards that affect a company's core operations — for example, revenue recognition changes for software companies or lease accounting changes for retailers with large store footprints. The transition method chosen (full retrospective versus modified retrospective) affects comparability with prior periods. Companies that delay adoption to the latest permitted date may be struggling with implementation complexity. Compare the disclosed impact assessments against peers in the same industry to gauge whether management's expectations are reasonable.