Requirements For Accounting Of Business Combinations

First, let’s get a little background on accounting for business combinations. The current accounting method for business combinations was issued in 2007 with the adjustment to SFAS 141(R), “Business Combinations” under FASB ASC 805. This change was made by the Financial Accounting Standard Board (FASB) in collaboration with International Accounting Standards Board (IASB) in order to make the U.S. accounting standards align more closely with the standards of the International Financial Reporting Standards (IFRS). The business combination accounting is initiated when a company gains control of a subsidiary either by obtaining or purchasing the

Paragraph 805-10-50-1 identifies one of the objectives of disclosures about a business combination. To meet that objective, the acquirer shall disclose all of the following information for each business combination that occurs during the reporting period:

• Transaction structures—the takeover could involve a cash offer, a share offer, an asset swap or a combination of these methods. Need to consider legal, taxation and accounting issues.

Over the years, there are many controversies over equity method within IAS 28 Investments in Associates and Joint Ventures. The controversies basically lay on the vagueness of application on equity method; whether it serves as one-line consolidation (consolidation technique), measurement basis or a mixture of both. This paper divides into 3 parts. First part gives an illustration on this accounting issue in IAS 28 as well as the explanation, second part compares and contrasts the financial reports of two assigned entities and the final part discusses the qualitative characteristics of their financial reports.

of the acquiring corporation . . . , and the acquiring corporation must be in control of the other corporation immediately after the

Major changes have occurred for financial reporting for business combinations beginning in 2009. These changes are documented FASB ASC Topic 805, “Business Combinations” and Topic 810, “Consolidation.” These standards require the acquisition method which emphasizes acquisition-date fair values for recording all combinations.

The grounds for any merger depend on the competitive nature of both firms. If one firm is highly competitive and tries to

(a) In a merger agreement, the assets and liabilities of the firm which is being acquired end up being absorbed by the buyers firm. A merger could be the most effective and efficient way to enter a new market without the need of creating

The FASB Accounting Standards Codification® is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied to nongovernmental entities.

When companies combine/merge the whole objective is to gain new opportunities, gain market share, grow the business, to become more innovative and to improve product offerings, utilizing/sharing the existing resources and data. From the case

extracted from the combination of the two businesses. For example, such a consolidation would allow

of the joint venture would benefit both companies if the terms of the agreement were favorable for both parties. It is also noted in the case that Sakari had

AASB 3 Business combinations para.14 requires that the acquisition method be used to account for business combinations. This method requires the identification of the acquirer. For example, para.17 states that “an acquirer shall be identified for all business combinations”.

One of the first things that is taught upon entering an acquisition career field is who has the authority to make purchases. Depending on the organization the requirements that these chosen individuals need to meet may vary greatly. The ones given this authority are typically held in the upmost trust and are required to have additional training to better prepare themselves for this responsibility. Unfortunately not everyone knows and understands who may and who may not have the authority to enter into binding contracts with that particular company or that organization, furthermore they may not understand what their responsibilities are. To confuse a situation even further, there are times when one may either express or imply they have

In cross-shareholding alliance the companies own stocks in another company and decisions should be made together. Both firms are still independent