The Financial Accounting Standards Board has issued a proposed standard to address the controversial issue of applying fair value accounting to assets and liabilities acquired from a business combination.
FASB Staff Position FAS 141(R)-a, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies," would amend FASB Statement No. 141 (revised 2007), "Business Combinations." The proposed FSP responds to the concerns of preparers, auditors, and members of the legal profession about the application of Statement 141(R) to the initial and subsequent recognition and measurement, and disclosure of assets and liabilities arising from contingencies in a business combination.
The proposed standard would require that an asset or a liability arising from a contingency in a business combination be recognized at fair value if fair value can be reasonably determined and would provide guidance on how to make that determination. If the fair value of an asset or liability cannot be reasonably determined, the proposed standard would require that an asset or liability be recognized at the amount that would be recognized in accordance with FASB Statement No. 5, "Accounting for Contingencies," and FASB Interpretation No. 14, "Reasonable Estimation of the Amount of a Loss," for liabilities and an amount using similar criteria for assets.
The proposed standard also would amend the subsequent measurement and accounting guidance and the disclosure requirements for assets and liabilities arising from contingencies in a business combination. FASB is soliciting comments on the proposed standard until Jan. 15, 2009.
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