Accounting for deals has become increasingly complex as financial reporting continues moving to a fair value model. Understanding the reporting requirements and how your decisions may impact future earnings is more important than ever. To structure and communicate M&A deals effectively, companies should understand the impact of acquisition accounting on the newly merged company’s earnings.
Source: PwC webcast on “How deals have changed: Lessons learned from applying the revised M&A accounting standards”, January 2011
Valuation involves more than determining “a number to book” for your transaction. Taking a combined approach that integrates a focus on industry issues — and the accounting and tax impacts — helps meet the challenges of today’s dynamic deal environment. That way, you can strive for greater insight into deal value drivers while avoiding restatement risk and anticipate the needs of auditors and regulators. A focus on a more robust pre-acquisition valuation of the deal will also help mitigate the risk of acquisition accounting estimates being significantly different from what is ultimately recorded at transaction close. This has become important since the new accounting standards increased the potential for post-close earnings volatility. You will be better positioned to assess the accretive or dilutive impact of a transaction if an effective pre-acquisition valuation is performed during the due diligence phase. PwC’s valuation specialists can help you perform a robust valuation analysis in the diligence phase that can be converted into a post-deal valuation required for financial reporting and tax needs, and mitigate the risk of earnings surprises post-deal.
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Click here to learn how one company was able to effectively document fair value for both tax and financial reporting purposes.