The Financial Accounting Standards Board has released a proposed accounting standards update to simplify the accounting for measurement-period adjustments in business combinations.
The proposal, which was released last week, is part of FASB’s simplification initiative, whose goal is to improve areas of U.S. GAAP for which the cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements.
Stakeholders have told FASB that the requirement to retrospectively apply adjustments to provisional amounts recognized in a business combination adds cost and complexity to financial reporting, but does not significantly improve the usefulness of the information. Under FASB’s current guidance, if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer reports in its financial statements provisional amounts for the items for which the accounting is incomplete.
During the measurement period, when new information is received about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts initially recognized or would have resulted in the recognition of other assets or liabilities, the acquirer needs to retrospectively adjust the provisional amounts recognized at the acquisition date to reflect that information with a corresponding adjustment to goodwill. The acquirer also has to revise comparative information for prior periods presented in financial statements as needed, including making changes to depreciation, amortization, or other income effects as a result of changes made to provisional amounts.
To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the proposed amendments would require the acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined.
The acquirer also would 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.
FASB is asking for comments on the proposal to be submitted by July 6.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access