Update to FASB’s SAS 141
By: Dennis Gardiner, Partner | email
Accounting for mergers in the future will be impacted by this statement. Essentially, this Statement will require “Purchase Method” accounting for all business combinations. Previously, “Pooling-of-Interests Method” of accounting has been applied to mergers (including triangular mergers) of mutual entities (cooperatives and credit unions).
Simply put, in accounting for mergers in the past, we have combined the balance sheets of the entities involved. After this Statement becomes effective, that will no longer be the practice.
This Statement will define the acquirer as the entity that obtains control in the business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141(R) does not define the acquirer, but it includes guidance on identifying the acquirer. After the effective date of this statement, one company will be deemed the acquirer, even in “true mergers”.
Improvements:
- Broader scope
- More clearly defines the combining entities
- Recognizes non-controlling interest, gains and goodwill
- Improves the comparability of financial information
The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS 141(R) establishes principles and requirements for how the acquirer a) Recognizes and measures the assets acquired, liabilities assumed and any non-controlling interest in the acquiree b) Recognizes and measures the goodwill acquired or a gain from a bargain purchase c) Determines what information to disclose.
This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Or more clearly, fiscal years ending December 31, 2009 and later.
As you begin to enter in to discussions or consideration of a merger in the future, you may want to visit with us to understand the accounting implications of the application of SFAS 141(R).
