The accounting for business combinations, divestitures, and related topics such as impairments and segment reporting continues to pose many challenges and remains on the SEC's radar screen.
Two trends in business combinations that we highlighted recently focus on talent acquisitions and financial risk management in connection with an acquisition. Many companies are looking to gain access to talented employees through acquisitions. Additionally, the acquisition of a business can have a significant impact on the risk exposures and risk management strategies of the combined business. Refer to PwC’s The Quarter Close – First quarter 2013 and Mergers & Acquisitions—a snapshot: Financial risk management considerations in an acquisition where we discuss further some of the critical considerations.
In April, the FASB issued a proposal that will change the criteria for reporting discontinued operations. The threshold for reporting discontinued operations will be raised to a component that either represents a separate major line of business or major geographical area of operations. As a result, the proposal is expected to reduce the number of disposals that will qualify as discontinued operations. However, a seller’s continuing involvement with a disposed component or having ongoing cash flows and operations will no longer preclude presentation as a discontinued operation. New disclosures will be required about an entity’s discontinued operations and about significant disposals that do not meet the threshold of a discontinued operation. The guidance will be applied prospectively with early adoption permitted. However, an effective date has not yet been determined. The board will resume deliberations after the public comment period ends in August. Refer to PwC’s In Brief No. 2013-18 for additional details.
At its March meeting, the EITF continued to discuss Recognition of New Accounting Basis (Pushdown) in Certain Circumstances (Issue 12-F). This Issue addresses the scope and threshold for applying pushdown accounting. The decisions reached may affect the SEC's current guidance on when to apply pushdown accounting and may also extend pushdown accounting to nonpublic entities. While the EITF largely supported applying pushdown accounting to all transactions in which an acquirer obtains control of an entity, further discussion is planned to evaluate additional follow-on issues including whether pushdown would be required or optional upon a change of control. Refer to PwC's EITF Observer – March 2013 for additional details.
In March, the FASB issued Accounting Standards Update No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This new standard reflects a final consensus reached by the EITF at its January meeting regarding whether, when, and how to release CTA into earnings in various deconsolidation and consolidation transactions. Refer to PwC's EITF Observer – January 2013 for additional details.
Last July, the FASB issued Accounting Standards Update No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. This standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment by providing entities with an option to perform a "qualitative" assessment to determine whether further impairment testing is necessary. This means that a company is no longer required to calculate an indefinite-lived intangible asset's fair value unless it is more likely than not that the asset is impaired. The approach is similar to the guidance finalized in 2011 for goodwill impairment testing. Refer to PwC's Dataline 2012-08 for further details on the qualitative impairment assessment of indefinite-lived intangible assets and for more information on the qualitative assessment of testing goodwill for impairment, PwC's Dataline 2011-28.
Among the continuing areas of challenge for preparers and users is the application of guidance for:
In addition to being complex, applying the relevant accounting guidance often involves significant judgments and estimates to be determined by both financial and non-financial management. PwC has a publication series entitled “Mergers & acquisitions - a snapshot” that takes these complex topics and addresses them in a plain-English manner. PwC has issued 14 publications from this series since 2008 with the most recent issue in April 2012 addressing pushdown accounting. This series and other technical alerts are available in the “Publications” section of this website.
The FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (the revised standard), on July 27, 2012. The revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment by providing entities with an option to perform a "qualitative" assessment to determine whether further impairment testing is necessary. The approach is similar to the guidance finalized last year for goodwill impairment testing. This Dataline looks at the key provisions of the revised standard and offers our observations. Read more