FASB moves to simplify business combination accounting

By Ken Tysiac

FASB issued new guidance Friday designed to simplify accounting for adjustments made to provisional amounts recognized in a business combination.

The requirement to retrospectively account for those adjustments is eliminated by the amendments in Accounting Standards Update No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.

Stakeholders told FASB that the requirement to retrospectively apply these adjustments added cost and complexity to financial reporting without significantly improving the information available to financial statement users.

The amendments require:

  • An acquirer to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined.
  • An acquirer to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects resulting from the change to the provisional amounts. This effect is required to be calculated as if the accounting had been completed at the acquisition date.
  • An entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.

For public business entities, the amendments take effect for fiscal years beginning after Dec. 15, 2015, including interim periods within those fiscal years. All other entities are required to apply the new requirements for fiscal years beginning after Dec. 15, 2016, and interim periods within fiscal years beginning after Dec. 15, 2017.

All entities are required to apply the amendments prospectively to adjustments to provisional amounts that occur after the effective date, with earlier application permitted for financial statements that have not been issued.

The standard is a product of FASB’s simplification initiative, which identifies areas of GAAP where cost and complexity can be reduced without sacrificing the usefulness of information provided to financial statement users.

Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.

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