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.
In November, the FASB voted to endorse the Private Company Council’s proposal that would result in significant changes to the accounting for goodwill. Under the guidance, goodwill may be amortized over a maximum term of 10 years and would be subject to a trigger-based impairment test performed at either an entity-wide level or reporting unit level. The impairment assessment would be a one-step test in which any difference between the fair value of the entity (or reporting unit) and its carrying amount would reduce goodwill. For eligible entities that choose to adopt this guidance, the effective date would be for years beginning after December 15, 2014, with early adoption permitted. A final standard is expected to be issued in December. The FASB decided to add a separate project to its agenda to explore whether some or all of these changes should also be extended to public companies. Refer to PwC’s October edition of the Private Company Reporter for details.
In November, the FASB voted to issue a final standard that will result in significant changes to the presentation and reporting of discontinued operations. The threshold for reporting discontinued operations will be “a component or group of components that has been disposed of or is classified as held for sale, together as a group in a single transaction,” and “represents a strategic shift that has (or will have) a major effect on an entity’s financial results.” In addition, discontinued operations will no longer be precluded when there is significant continuing involvement or the operations and cash flows are not eliminated after a disposal. Several new disclosures will be required, including operating and investing cash flows for discontinued operations and pre-tax earnings for individually material components that do not meet the definition of a discontinued operation. The guidance will be applied prospectively to new disposals in annual periods beginning on or after December 15, 2014, with early adoption permitted. The final standard is expected to be issued in January. Refer to PwC’s In brief 2013-46 for details.
The FASB recently resumed deliberations on its consolidation project. The project focuses on assessing factors to determine if a decision maker (the party with the power to direct the most significant activities of an entity) is a “principal” or an “agent” in order to conclude whether consolidation is appropriate. Asset managers and others in the financial services sector would be most impacted. At its October meeting, the FASB decided to exclude from the scope of the project money market funds that are registered with the SEC as well as “similar” unregistered money market funds . The FASB expects to complete the project and release a final standard in the second half of 2014. An effective date has not yet been decided. Refer to PwC’s In brief 2013-44 for details.
At its November meeting, the EITF continued discussing Issue 12-F, Recognition of New Accounting Basis (Pushdown) in Certain Circumstances which addresses the scope and threshold for applying pushdown accounting in a subsidiary’s financial statements. For public entities, the Task Force reached a tentative decision to require pushdown accounting upon an entity becoming substantially wholly-owned as a result of a business combination, and to provide an option to apply pushdown accounting upon a change in control. For nonpublic entities, the Task Force tentatively decided not to require pushdown accounting at any level, but to provide an option to apply pushdown accounting upon a change in control. The Task Force will continue deliberating follow-on issues when it meets again in March. Look to PwC’s EITF Observer – November 2013 for details.
Finally, two standards were issued in 2013, but are not required to be adopted until 2014:
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.
This PwC guide explains the fundamental principles of accounting and reporting for business combinations and noncontrolling interests under both U.S. GAAP and IFRS. This guide also includes our perspectives on the application of those principles, as well as our insights on the challenges of accounting for intangible assets and goodwill in the postacquisition period. Read more