As part of its ongoing initiative to simplify GAAP, the Financial Accounting Standards Board has released an accounting standards update that eliminates the requirement to retrospectively account for adjustments made to provisional amounts recognized in a business combination.

According to the board, stakeholders had said that the requirement to retrospectively apply adjustments added cost and complexity to financial reporting, but did not “significantly improve the usefulness of the information provided to users.”

ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, require that:

  • An acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. 
  • The acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. 
  • An entity present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized.

The ASU applies to all entities that have reported provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs, and during the measurement period have an adjustment to provisional amounts recognized.
For public companies, the update will be effective Dec. 15, 2015, including interim periods within those fiscal years. It should be applied prospectively to adjustments to provisional amounts that occur after the effective date, with earlier application permitted for financial statements that have not been issued.

For all other entities, the amendments in the update are effective for fiscal years beginning after Dec. 15, 2016, and interim periods within fiscal years beginning after Dec. 15, 2017, and should also be applied prospectively.

The ASU is available on FASB’s Web site

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