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.
Subsequent to the release of the 2013 edition of the Guide, the FASB issued Accounting Standards Update No. 2014-02, Accounting for Goodwill. The new standard represents a fundamental overhaul of the existing accounting model for goodwill that provides an optional alternative for private companies. A private company that elects to adopt the alternative will be able to both amortize goodwill and apply a simplified goodwill impairment test. The standard is effective for annual periods beginning after December 15, 2014 and interim periods within annual periods beginning after December 15, 2015. Early adoption is permitted.
Dataline 2014-05 includes an appendix that discusses the private company goodwill accounting alternative. It serves as an insert to Chapter 11, "Accounting for Goodwill Postacquisition – U.S. GAAP," of the Guide.
About this PwC Guide
For many companies, mergers and acquisitions are key strategic drivers of shareholder value. Although in theory the accounting and financial reporting for an acquisition should not affect the decision to buy or sell a business, understanding the treatment of these transactions can often facilitate the evaluation of a deal, including decisions about how to communicate the transaction to company stakeholders. Moreover, accounting and valuation challenges have arisen because of the many accounting concepts and requirements contained in the standards. The standards include the extensive use of fair value accounting, and other requirements that can result in earnings volatility in connection with and after an acquisition.
This PwC guide for accounting and reporting for business combinations and noncontrolling interests under both U.S. GAAP and IFRS will help companies understand the full magnitude of an acquisition’s impact on their financial results.