Accounting for Mergers and Acquisitions of Not-for-Profit Entities (Portfolio 5203)
This portfolio provides a comprehensive discussion of the accounting and reporting requirements of U.S. Generally Accepted Accounting Principles (GAAP) for mergers and acquisitions of most nongovernmental not-for-profit entities.
Bloomberg Tax Portfolio 5203, Accounting for Mergers and Acquisitions of Not-for-Profit Entities (Accounting Policy and Practice) provides a comprehensive discussion of the accounting and reporting requirements of U.S. Generally Accepted Accounting Principles (GAAP) for mergers and acquisitions of most nongovernmental not-for-profit entities.
Accounting and disclosure requirements for not-for-profit entities differ from those of for-profit entities because not-for-profit entities do not generally have ownership interests; instead they often receive a significant portion of their revenues from donors. Moreover, unlike for-profit entities, not-for-profit entities by definition lack a profit motive.
This Portfolio describes the accounting rules and reporting requirements that apply specifically to mergers and acquisitions of not-for-profit entities. It describes the types of mergers and acquisitions that commonly occur in the not-for-profit sector. It also explains when and how to apply the two accepted methods for accounting for business combinations in this sector – the acquisition method and the carryover method.
Similar to the accounting and disclosure requirements for for-profit entities, acquisitions of not-for-profit entities are accounted for using the acquisition method. The main provisions of the acquisition method provided in Topic 805, Business Combinations, of the FASB Accounting Standards Codification (ASC) are applicable to transactions that are classified as acquisitions of not-for-profit entities, with incremental guidance provided for not-for-profit entities in ASC 958-805, Not-for-Profit Entities: Business Combinations. Although for-profit entities can only use the acquisition method for business combinations, not-for-profit entities can use the carryover method for transactions that are classified as mergers of not-for-profit entities. Accounting guidance for transactions that are classified as mergers of not-for-profit entities is provided in ASC 958-805.
This Portfolio also describes the accounting and disclosure requirements for identifiable intangible assets and goodwill that are recognized in acquisitions of not-for-profit entities, in accordance with ASC 350, Intangibles – Goodwill and Other. The accounting for intangible assets and goodwill for not-for-profit entities is similar to the accounting treatment used by for-profit entities. Subsequent to an acquisition, intangible assets may be either amortized over their useful lives, or evaluated for impairment, depending on whether they have finite or infinite useful lives. Goodwill should be evaluated for impairment subsequent to an acquisition using either the qualitative evaluation method or two-step impairment test.
This Portfolio may be cited as Bloomberg Tax Portfolio 5203, Daher and Daher, Accounting for Mergers and Acquisitions of Not-for-Profit Entities (Accounting Policy and Practice Series). This Portfolio cites to other Portfolios within the Accounting Policy and Practice Series as Bloomberg Tax Portfolio. For instance, this Portfolio refers extensively to a companion Portfolio cited as Bloomberg Tax Portfolio 5200, Accounting for Not-for-Profit Organizations.
Table of Contents
I. Background and Scope of Portfolio
II. Nature of Not-for-Profit Business Combinations
III. Authoritative Accounting Literature and Accounting Issues Unique to Not-for-Profit Entities
IV. Consolidated Financial Statements of Not-for-Profit Entities
V. Defining and Classifying Business Combinations Involving Not-for-Profit Entities
VI. Carryover Method of Accounting
VII. The Acquisition Method
VIII. Fair Value Measurement Principles Applied to Acquisitions of Not-for-Profit Entities
IX. Financial Statement Presentation Requirements for Acquisitions
X. Accounting for Goodwill and Other Intangible Assets Subsequent to an Acquisition of a Not-for-Profit Entity
Associate Vice President, Tax Compliance And Internal Audit
University Of San Francisco
Associate Vice President, Finance and Treasury
University of San Francisco