Valuation Considerations of Accounting Standards Codification (ASC)
One of the most significant results of the restructuring of accounting and reporting standards has been the impact on the accounting for business combinations and fair value measurements. All of the previously utilized FASB statements (FASB 141, FASB 141-R, FASB 142, FASB 157, FASB 144, etc.) have been reclassified to the new ASC codification. A list of the most utilized FASB statements for financial reporting and their new classification numbers are presented below.
| PRIOR |
NEW |
| FASB 141-R, Business Combinations |
ASC 805, Business Combinations |
| FASB 142, Goodwill & Other Intangible Assets |
ASC 350, Intangibles-Goodwill and Others |
| FASB 157, Fair Value Measurements |
ASC 820, Fair Value Measurements & Disclosures |
On December 4, 2007, FASB issued Statement 141 (revised 2007), Business Combinations, which changed how companies accounted for business acquisitions after December 15, 2008. In 2009, FASB issued Statement 141-R which replaced Statement 141 in its entirety. ASC 805, Business Combinations (“ASC 805”) which became effective September 15, 2009, replaces Statement 141-R and continues the mandate that all business combinations be accounted for using the acquisition method versus the purchase method.
Business combination accounting now applies to a broader range of transactions and events, including acquisitions of some development stage companies, combinations of mutual entities, acquisitions without the exchange of consideration, and the initial consolidation of a variable interest entity that is a business.
There are important changes between SFAS 141 and SFAS 141-R, including the Recognition Principle and the Measurement Principle. Under the Recognition Principle, an acquirer recognizes ALL of the assets acquired and ALL of the liabilities assumed. Under the Measurement Principle, the acquirer measures each recognized asset acquired and each liability assumed and any non-controlling interest at its acquisition date fair value. It also includes the measurement of the consideration actually transferred in a business combination, which requires an overall business enterprise valuation of the acquired entity utilizing appropriate valuation techniques as described in ASC 805 and ASC 820, Fair Value Measurements & Disclosures (“ASC 820”). The new measurement will result in the recognition of the full amount of acquisition-date goodwill including any amounts attributable to non-controlling interests.
Some of the important differences between ASC 805 and SFAS 141/SFAS 141-R are listed below.
| Issue |
SFAS 141 and SFAS 141-R |
ASC 805 |
| Acquisition Date |
Announcement Date |
Date control is acquired |
| Measurement Date |
Reasonable period of time before/after terms are agreed to |
Fair Value at Acquisition Date |
| Acquisition Costs |
Expensed at Acquisition |
Excluded from Transaction |
| IPR&D |
Immediately expense |
Fair Value at Acquisition Date |
| Contingent Asset |
Valued if determinable & probable |
Fair Value at Acquisition Date |
Fair value measurements for acquired assets and liabilities are prepared in accordance with ASC 820 and require the use of market participant assumptions about an acquired asset’s highest and best use, regardless of the acquirer’s intended use of that asset. ASC 805 clarifies that market participant data about an asset’s highest and best use are the basis for fair value measurements for both initial recognition and subsequent testing for impairment.
For further information please contact Rose Moroz at 610.254.8990 x. 208.
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