The Financial Accounting Standards Board responded to a post-implementation review of its accounting standard for business combinations by saying that it would consider the findings of the report, along with an upcoming post-implementation review of its fair value measurement standards, and may make changes once the International Accounting Standards Board concludes its own post-implementation reviews of the corresponding International Financial Reporting Standards.

Last week, FASB’s parent organization, the Financial Accounting Foundation, released the results of its post-implementation review of the business combinations standard, FASB Statement No. 141(R), which was revised in 2007, and pointed out a number of problems in its report (see FASB Standard on Business Combinations Gets Mixed Review). Some of them involved fair value measurement, with some investors questioning the reliability of information reported on assets and liabilities that are difficult to measure at fair value, that result in a bargain purchase, or that may be asset purchases. The FAF simultaneously announced that its next post-implementation review would be of the fair value measurement standard, FAS 157. The standard was issued in 2006 and amended in response to the financial crisis, amid problems with mark-to-market accounting of mortgage-backed assets that were difficult to sell or value in an illiquid market, prompting demands in Congress for prompt action on behalf of the banking industry.

It is not yet clear if FASB will receive similar feedback in the post-implementation review of FAS 157, since it was changed in response to problems with mark-to-market accounting. However, it is likely that it will consider making adjustments at least in the business combinations standard.

FASB Statement No. 141R, (codified in Accounting Standards Codification Topic 805, Business Combinations), requires an acquiring organization to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired organization at the acquisition date, measured at their fair values as of that date, with limited exceptions. Statement 141(R) is largely converged with IFRS 3 (revised 2007), Business Combinations. 

In response to the post-implementation review, FASB acknowledged the findings that some participants expressed difficulty in applying the definition of a business, accounting for purchased loans, and separately reporting some intangibles and goodwill. The board said Thursday that it would consider the PIR report’s findings in relation to other projects that are currently underway.

FASB also acknowledged the PIR findings related to the cost and complexity of applying the fair value measurement guidance in FASB Statement No. 157, Fair Value Measurements, to certain types of assets and liabilities acquired in a business combination. FASB said it would review the findings of the forthcoming PIR on Statement 157, and will coordinate with the IASB once the review of IFRS 3 is complete, before deciding whether to undertake any standard-setting action.

FASB said it would report back to the FAF’s Oversight Committee and the Board of Trustees as progress is made.

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