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Accounting Changes Trigger Major Shift in Business Earnings Reporting

NEWS RELEASE

Contacts:
Mark Carrington
(703) 341.5880
mcarrington@bna.com

Arlington, Va. (May 26, 2009) – A new business combinations standard issued by the Financial Accounting Standards Board (FASB) which took effect on January 1, 2009, is having a profound impact on the earnings reporting of U.S. companies engaged in mergers and acquisitions.  At the heart of this sea-shift is the replacement of the “purchase method” of accounting with the “acquisition method”, according to Business Combinations (Portfolio 5170), the latest analysis from BNA Tax & Accounting, which fully explores the impact of the new accounting standard.

“FAS 141(R) continues the movement toward greater use of fair value in financial reporting, and is likely to affect the planning, execution, accounting and disclosure of merger transactions and how those transactions are communicated to stakeholders,” says BNA Executive Editor, State Tax and Accounting, George Farrah. “Understanding the impact of these FASB standards is critical for financial accounting professionals.”

The new standard will also affect companies that have engaged in prior acquisitions by changing the way they account for prospective adjustments to acquired uncertainties and reductions to valuation allowances, according to a report by PricewaterhouseCoopers. It may impact the goodwill impairment charge taken by companies who must write down their goodwill.

The Portfolio, part of BNA’s Accounting Practice & Policy Series, discusses measuring an acquired entity's fair value, as well as applying the acquisition method to specific situations including reverse acquisitions, combinations achieved by contract alone, and combinations that occur in stages. It includes worksheets, a due diligence checklist, a disclosures checklist, and example disclosures.

The authors are Pamela A. Smith, CPA, Ph.D., KPMG Professor of Accountancy at Northern Illinois University; Ervin L. Black, Ph.D., the PricewaterhouseCoopers Fellow at Brigham Young University; and Daniel T. Gary, CPA, a partner in KPMG's Transaction Services practice.

Related coverage of issues surrounding accounting for business combinations is found in the following related accounting Portfolios from the BNA Tax & Accounting series:

• Portfolio 5127, Fair Value Measurements: Valuation Principles and Auditing Techniques — a comprehensive review of FASB Statement No. 157, Fair Value Measurement.

• Portfolio 5115, Business Combinations: Goodwill and Other Intangible Assets — which defines and discusses accounting for goodwill and other intangible assets, both in general and in the business combinations context.

• Portfolio 5203, Accounting for Combinations of Not-for-Profit Organizations — provides a comprehensive discussion of the accounting and reporting requirements under U.S. GAAP for combinations of most nongovernmental not-for-profit organizations.

About BNA Tax & Accounting
BNA Tax & Accounting is the foremost source of news, analysis, and practice tools for tax attorneys, estate planners, accountants, and corporate tax and financial accounting professionals. For more than 50 years, BNA Tax & Accounting has offered practitioners expert insights and guidance on every significant issue in tax planning and financial accounting. Written by practitioners for practitioners, BNA’s award-winning Portfolios offer topic-driven, in-depth guidance on transactions designed to help tax professionals achieve new levels of excellence and client service. For more information on BNA’s Accounting Policy & Practice series of which this Portfolio is a part, go to http://www.bnatax.com/tm/apps_details.htm or call 800.372.1033.

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