Insights on financial services M&A
Insights on financial services M&A
Insight

Insights on financial services M&A | April 2019

Explore topics impacting financial services M&A including ASC 606 revenue recognition considerations.

  • ASC 606 revenue recognition considerations for financial services M&A
  • Financial services valuation trends

ASC 606 revenue recognition considerations for financial services M&A

 

The adoption date of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606), was effective for public and private entities as of January 1, 2018 and January 1, 2019, respectively.  Implementation of ASC 606 necessitates additional considerations for buyers and sellers throughout the M&A process, including assessment of target companies’ adoption progress, the impact of ASC 606 on financial performance, and operational changes required at a target company for successful implementation.  Accounting and operationalizing for these considerations presents new challenges in due diligence, modeling future performance, and planning for integration or exit. 

During diligence, a buyer should gain comfort not only with the potential impact to the amount and timing of revenue recognition, but also with one-time costs associated with documentation or changes to existing controls and operational processes.  Additionally, acquisition-related accounting, including accounting policy alignment, present additional unique complexities.  Preparedness of the target company is also critical to successful integration, as non-public targets will need to meet compliance and reporting deadlines for implementation, as well as buyers’ internal timelines.

The implementation of ASC 606 is not a simple exercise, requiring companies to evaluate their transactions with enhanced judgment and uncertainty. Although ASC 606 prescribes an industry-agnostic approach to recognizing revenue, there are certain key changes for the financial services industry. These include determination and recognition of performance-based fees in the asset management sector, deferral of retainer fee recognition in the investment banking sector, and acceleration of renewal commission revenue for insurance brokerages.

Even if the financial or tax impact of the transition is not considered material, a comprehensive review of the facts and circumstances of revenue-generating transactions will be required to ensure compliance, in conjunction with auditors or external advisors. 

For additional guidance on and interpretation of ASC 606, explore

KPMG Handbook: Revenue Recognition.

 

For more information, contact:

Reza Van Roosmalen

Alan Carrasco

Elyse Scherer

 

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.