Business Combinations (Portfolio 5170)

  • Business Combinations explains and analyzes financial accounting for mergers, acquisitions, and other business combinations under domestic and international accounting standards.


Bloomberg Tax Portfolio 5170, Business Combinations (Accounting Policy and Practice Series), explains and analyzes financial accounting for mergers, acquisitions, and other business combinations under domestic and international accounting standards. This Portfolio focuses on converged domestic and international financial reporting standards set forth in FASB Accounting Standards Codification (ASC) 805, Business Combinations (based in part on rules issues in December 2007 through former FASB Statement No. 141R, Business Combinations: A Replacement of FASB Statement No. 141 ((FAS 141R), and International Financial Reporting Standard No. 3, Business Combinations (as revised) (IFRS 3R), released in January 2008. The Portfolio also compares these rules to their predecessors, identifies significant remaining differences between the domestic and international rules notwithstanding the converged standards, and explains effective dates so that users of the Portfolio can know which rules apply to particular transactions.

After summarizing its scope, focus, purposes and contents, the Portfolio focuses on why enterprises consummate business combinations, discusses the major principles of the converged standards, definines a “Business Combination,” and explains in detail how to apply the “acquisition method” (which replaces the “purchase method”) of accounting for combinations. The Portfolio details the process of measuring an acquired enterprise’s fair value but also addresses how to account for assets and liabilities not recognized at fair value as of the acquisition date. Users seeking additional guidance on fair value measurements generally are urged to consult Bloomberg Tax Portfolio 5127, Ketz and Zyla, Fair Value Measurements: Valuation Principles and Auditing Techniques (Accounting Policy and Practice Series). This Portfolio also explains how to apply the acquisition method to specific situations including reverse acquisitions, combinations achieved by contract alone, and combinations that occur in stages.

In addition to explaining how to account for business combinations, this Portfolio describes and illustrates required disclosures. The Worksheets include a roadmap to the acquisition method of accounting, due diligence checklist, information request for valuation purposes, disclosures checklist and example disclosures, and summary comparisons of ASC 805, former FAS 141 and IFRS 3R.

This Portfolio does not discuss two substantial subjects intertwined with business combinations: (i) business combinations of not-for-profit organizations, joint ventures, entities under common control, and (ii) consolidated financial statements and accounting for non-controlling interests. Readers interested in business combinations involving not-for-profit organizations are encouraged to consult Bloomberg Tax Portfolio 5203, Daher and Daher, Accounting for Combinations of Not-for-Profit Organizations, (Accounting Policy and Practice Series) (which currently is undergoing revisions for the codified rules set forth in ASC 958-805, Not-for-Profit Entities — Business Combinations, as those rules are based on FASB Statement No. 164, Not-for-Profit Entities: Mergers and Acquisitions — Including an Amendment to FASB Statement No. 142).

This Portfolio may be cited as Bloomberg Tax Portfolio 5170, Smith, Black and Gary, Business Combinations (Accounting Policy and Practice Series)

Table of Contents

I. Scope, Focus, Purpose, and Contents of Portfolio
II. Motivations for Business Combinations
III. Convergence on Accounting for Business Combinations
IV. Effective Dates
VI. Major Principles in Accounting for Business Combinations
VII. A Business Combination Defined
VIII. Acquisition-Related Issues
IX. Measuring the Fair Value of the Acquiree
X. Applying the Acquisition Method to Specific Situations
XI. Disclosures

Pamela Smith
KPMG Professor of Accountancy
Northern Illinois University
Ervin Black
Ervin Black
Director, Steed School of Accounting
University of Oklahoma
Daniel Gary
Partner, Divestiture Advisory Services (DAS)
Ernst & Young LLP
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