M&A accounting changes

With deals totaling somewhere north of $4.5 trillion, 2015 set a record for M&A activity, according to The Wall Street Journal. Although it is too early to tell, many business observers expect the torrid pace of acquisitions may continue through 2016.

So it is good news for acquiring companies that the Financial Accounting Standards Board has recently released regulations aimed at making reporting mergers easier and less expensive.

ASU 2015-16 Business Combinations (Topic 805), Simplifying the Accounting for Measurement Period Adjustments, will affect how businesses report items when accounting for the assets is incomplete at the end of the reporting period and the provisional amounts are subsequently finalized.

When a business combination occurs, the acquirer remeasures assets and liabilities acquired. Measurement is incomplete in some instances when the financial statements for the period including the acquisition are issued or made available for issuance. In current practice, when acquiring entities finalize the incomplete (provisional) values during the period subsequent to the acquisition, they are required to go back and revise the prior period financial statements to reflect the final measurement.

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NEW REQUIREMENTS

The acquiring business will no longer have to retrospectively revise prior-period financial statements for adjustments made to the provisional amounts recognized in a subsequent period. They will instead recognize adjustments to the provisional amounts during the measurement period, in the reporting period in which the adjustments are made. Included in the requirements is that the acquirer compute the cumulative effect on the income statement from the date of acquisition, as if the change was recognized upon the date of acquisition.

Disclosure of the adjustment to the provisional amounts recognized is required. In addition, the acquirer is required to present the amounts recorded in current period earnings (by line item) that would have been recorded in previous reporting periods.

Reporting entities will be required to distinguish those items that are measurement- period adjustments accounted for prospectively under ASU 2015-16, from those that are corrections of accounting errors that require restatement of prior-period amounts.

EFFECTIVE DATES

Public business entities are required to adopt the ASU for fiscal years beginning after Dec. 15, 2015 (calendar year 2016), including interim periods within. All other businesses are required to adopt the ASU for fiscal years beginning after Dec. 15, 2016 (calendar year 2017), and interim periods within fiscal years beginning after Dec. 15, 2017 (calendar year 2018). Early adoption for financial statements of public business entities that have not yet been issued, or for nonpublic business entities that have not yet been made available for issuance, is permitted.

All changes to provisional amounts that occur after the ASU’s effective date should be adopted going forward. •

Patrick Quinn is a shareholder in the Accounting and Auditing Group at CBIZ Tofias & Mayer Hoffman McCann, which has offices nationwide, including Providence and Boston.

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