Business combinations accounting

The accounting for business combinations (ASC 805), discontinued operations, divestitures, and related topics such as impairments, intangibles, and segment reporting continue to pose many challenges and remains on the SEC's radar screen.

Read the latest developments on these accounting for business combinations topics:

  • In November 2015, the FASB decided to eliminate the requirement to retroactively adopt the equity method of accounting for an investment that was previously accounted for on a basis other than the equity method (for example, available-for-sale security).

  • The standard would require entities that have an available-for-sale equity security that becomes eligible for the equity method of accounting to recognize the accumulated other comprehensive income income or loss (related to the unrealized holding gains or lossess) through earnings at the date in which the investment qualifies for use of the equity method.

  • The standard would be applied prospectively to increases in ownership level or degree of influence occurring after the effective date of the change and no incremental disclosures would be required in the period this change is adopted. Entities would apply this new standard in fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Entities would have the option of early application.

  • In addition, the FASB added a separate project to its agenda for improving the equity method of accounting more broadly, and directed the staff to research additional alternatives.
  • On September 25, 2015, the FASB issued Accounting Standards Update 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, that eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified.

  • The new standard should be applied prospectively to measurement period adjustments that occur after the effective date. For public business entities, the new standard is effective for interim and annual periods beginning after December 15, 2015. For non-public business entities, the new standard is effective for annual periods beginning after December 15, 2016 and interim periods beginning after December 15, 2017. Early adoption is permitted for all entities.
  • The clarifying the definition of a business project includes three phases. The first phase is focused on revising the definition of a business with the objective of narrowing its application.The second phase is focused on finalizing the scope of the recognition and measurement guidance for partial sales under ASC 610-20, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets. Finally, the third phase is focused on aligning current accounting differences in the acquisitions and disposals of businesses and assets.

Phase I

  • The FASB proposed the following key changes in an exposure draft:

    • When substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset (or a group of similar identifiable assets), the assets acquired would not represent a business.

    • To be considered a business, an acquisition would have to include, at a minimum, an input and a substantive process that together contribute to the ability to create outputs. The proposal provides a framework to evaluate when an input and substantive process is present, and removes the current requirement to assess if a market participant could replace any missing elements.

    • Narrower definition of outputs so that the term is consistent with how outputs are described in Topic 606, Revenue from Contracts with Customers. Under the proposed definition, an output is the result of inputs and processes that provide goods or services to customers, other revenue, or investment income, such as dividends and interest.

Phase II

  • The FASB has made a number of tentative decisions, including:

    • Any transaction where a seller either retains an equity interest in an entity or receives an equity interest in an entity would be in the scope of ASC 610-20. Transactions involving business are outside of the scope of ASC 610-20 even if they are also considered in-substance nonfinancial assets.

    • Any retained or received equity interests would be measured at fair value in partial sale transactions that result in a loss of control.

    • Partial sale transactions that do not result in a loss of control would generally follow the existing guidance for such transactions in ASC 810, Consolidation.

Phase III

  • The Board has not begun deliberations on the project’s third phase.
  • Following the issuance of Accounting Standards Update No. 2014-02, Accounting for Goodwill, which significantly changes the way that private companies can account for goodwill, the FASB has undertaken a project to consider changes to the accounting for goodwill for all companies (including public, private and nonprofit entities). The Board decided to simplify the impairment test by removing the requirement to perform a hypothetical purchase price allocation when the carrying value of a reporting unit exceeds its fair value (i.e., eliminating step 2 of the impairment model in current GAAP).

  • The board also decided to add a separate project to its agenda for public business entities and not-for-profits on a potential simplification to the accounting for identifiable intangible assets in a business combination. The Board is considering several potential alternatives related to both of these projects and is closely monitoring the IASB’s agenda.

Podcast: The lifecycle of a deal

Listen in to hear about common stages of an acquisition and key accounting questions along the way.

Business combinations and noncontrolling interests - 2014 global second edition (February 2016)

02/11/16

This PwC guide explains the principles of accounting and financial reporting for business combinations and noncontrolling interests (ASC 805) under both U.S. GAAP and IFRS. This guide includes our perspectives on the application of those principles, and our insights on the challenges of accounting for intangible assets and goodwill in the post-combination period. Read more

Deals series: Accessing the Debt Capital Markets - Trends and Opportunities webcast - October 27, 2016

10/27/16

In this webcast we'll discuss trends, opportunities and challenges in the debt capital markets, from both an issuer and an investor perspective, navigating the risk and regulatory requirements for various financing structures, and more.

Deals Practice series: Crisis, restructurings and restatements – Understand the options - Webcast replay

09/22/16

In this recorded webcast, we cover approaches to evaluating opportunities during distressed scenarios, developing a plan for change and executing it in order to build value for the future with speed and confidence.

Podcast: The lifecycle of a deal

09/20/16

Listen in to hear about common stages of an acquisition and key accounting questions along the way.

The quarter close: Directors edition Q3 2016

09/14/16

This quarterly publication is designed to keep directors informed about the latest accounting and financial reporting issues.

The quarter close – Q3 2016

09/12/16

We feature recent FASB releases, accounting and governance hot topics, and considerations for Q3 reporting.

2016 Mid-year Deals Outlook

08/16/16

Despite a slower start to 2016, we expect CEOs and business leaders will continue to look at M&A and other partnerships as a means to support growth, improve profitability and secure long-term competitiveness. This year’s deals may not be as large or generate the same level of attention as 2014 and 2015, but we expect deals will continue to get done at a reasonable pace.

PwC comments on proposed update to the derecognition of nonfinancial assets

08/05/16

PwC responded to the proposed clarification of the scope of ASC 610-20 and the accounting for partial sale transactions.

PwC comments on simplifying the measurement of goodwill impairment

07/08/16

PwC supports the proposed simplification to eliminate Step 2 of the current goodwill impairment test.

Joint Ventures and Strategic Alliances: Examining the keys to success

07/04/16

The Joint Ventures and Strategic Alliances paper discusses the current landscape for JVs and alliances, factors motivating their use, associated challenges, and leading practices for executing successful arrangements.

The quarter close: Directors edition Q2 2016

06/20/16

This quarterly publication is designed to keep directors informed about the latest accounting and financial reporting issues.