The acquisition of a business will likely impact a company’s effective tax rate as a result of the M&A Standards. Accounting Standards Codification 805 is the US standard on business combinations, Accounting Standards Codification 810 is the US standard on consolidation and noncontrolling interests (collectively the “M&A Standards”). In some cases, the effective tax rate will increase. In other cases, it will decrease. Either way, the rate will become more volatile, and less predictable, sometimes for several years following a significant acquisition.
This impact will be felt by acquisitive companies in all industries, public and private. Additionally, companies emerging from bankruptcy may be affected by the M&A Standards and may experience similar volatility in their effective tax rate in post-bankruptcy periods.
This edition of Mergers & Acquisitions — A snapshot focuses on how the accounting for merger and acquisition transactions will create volatility in an acquirer’s effective tax rate in periods before and after an acquisition.
*This snapshot, updated since its original issuance to reflect changes for, among other things, contacts and branding, contains guidance that remains relevant as of the publication date.
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