Frequently asked questions

Can companies adopt the provisions of the new standard prior to December 15, 2008?

It’s prohibited to adopt the provisions of the new standard prior to its effective date, however companies should assess the implications now to be better prepared.

What are the key changes and their implications?

See the key changes at a glance page.

Do the new standards on business combinations affect past and pending deals?

Generally, deals that close prior to the effective date of the new standard will follow applicable GAAP effective at that time. However, the new accounting for tax reserves and deferred tax valuation allowances will apply to all acquisitions, including those consummated in periods prior to the effective date of the new standard. Therefore, adjustments made to these accounts after the effective date of the new standard, that do not qualify as measurement period adjustments, will be charged to earnings. Previously, many of these adjustments would have affected goodwill.The new standards may also impact goodwill impairment tests that are performed after the effective date of the new standards, including goodwill arising from past deals. Also, all existing minority interests in consolidated subsidiaries will be reclassified on the balance sheet and income statement for all prior periods upon adoption.

How should I factor the new standards into my planning process for pending deals?

Because of the complexities of the new standards and their impact on earnings, companies should decide whether it is beneficial to close pending acquisitions or partial acquisitions before or after the new standard takes effect. Companies should similarly assess the timing of any plans to purchase non-controlling shares that are outstanding in their controlled subsidiaries, or to sell non-controlling interests in their subsidiaries. The financial reporting results for these transactions could be dramatically different depending on whether the close occurs before or after the new standards become effective.