FASB Business Combinations Proposal Seeks Simplification of Period Adjustments

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By Denise Lugo

May 21 — The Financial Accounting Standards Board proposed amendments that it intends would simplify the accounting for adjustments made to provisional amounts recognized in a business combination.

Adjustments to provisional amounts that are identified during the measurement period should be recognized in the reporting period in which the adjustment amount is determined, FASB proposed May 21.

Effect on Earnings

In the same period's financial statements, the acquirer should also record 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, the board proposed.

The effect on earnings should be calculated as if the accounting had been completed at the acquisition date.

Companies will be required to apply the amendments prospectively to adjustments to provisional amounts that are identified after the effective date of the proposed amendments and that are within the measurement period, said FASB.

Transition disclosures would also be required.

Reducing Cost, Complexity

Companies have said that the requirement to retrospectively apply adjustments made to provisional amounts recognized in a business combination adds cost and complexity to financial reporting, but doesn't significantly improve the usefulness of the information provided to users.

The proposed update was issued as part of the simplification initiative, which aims to identify, evaluate and improve areas of generally accepted accounting principles for which cost and complexity can be reduced.

FASB said it is seeking comments by July 6 on the proposal, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments.

To contact the reporter on this story: Denise Lugo in Norwalk, Conn., at dlugo@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

For a copy of the proposal, including how to submit comments go to http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176166046432&mc_cid=7e32f9abad&mc_eid=2f8c77068c

For a general discussion of business combinations, see 5170-2nd, Business Combinations, at 5170.