Defining Issues  |  June 2019

EITF reaches consensus-for-exposure on accounting for certain equity method investments

EITF discussed accounting for revenue contract liabilities in business combinations, certain equity method investments and licensing contract modifications. It reached a consensus-for-exposure on accounting for certain equity method investments.

Applicability

Proposed ASU

Recognizing contract liabilities in business combinations 

  • All companies that assume a contract liability in a business combination after adopting ASC 606.

Clarification of interactions between ASC 321 and ASC 323

  • All companies that invest in equity securities without readily determinable fair values that are accounted for under the ASC 321 measurement alternative.
  • All companies that hold certain forward contracts and purchased options to acquire equity securities without readily determinable fair values that do not meet the criteria for derivative accounting under ASC 815.

Contract modifications of licenses of intellectual property 

  • All companies that modify licenses of intellectual property.

Key impacts

  • Decided to defer a decision about whether to affirm its previous consensus-for-exposure about contract liabilities in a business combination until the FASB addresses measurement and other related issues described in a separate Invitation to Comment.
  • Reached consensus-for-exposure on two issues concerning the accounting for certain equity method investments. The EITF asked the FASB staff to perform additional research on a third issue. 
  • Discussed contract modifications of licenses of intellectual property. No decisions were made and the EITF asked the FASB staff to form a working group to discuss the issues and potential accounting alternatives in greater detail. 

Report contents

  • Revenue contract liabilities assumed in a business combination
  • Clarifying the interactions between ASC 321 and ASC 323
  • Contract modifications of intellectual property licenses

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