FASB Guidance on Mergers and Acquisitions Coming Soon
November 20, 2008
Long awaited Financial Accounting Standards Board (FASB) decisions on the October 2006 Exposure Drafts, "Not-for-Profit Organizations: Mergers and Acquisitions," and "Not-for-Profit Organizations: Goodwill and Other Intangible Assets Acquired in a Merger or Acquisition" are substantially complete. Final guidance should be forthcoming in 2009.
The new statement will provide guidance on accounting for both mergers of not-for-profit organizations and acquisitions by not-for-profit organizations. It also will amend FASB Statement (SFAS) No. 142, "Goodwill and Other Intangible Assets," to make that statement fully applicable to not-for-profit organizations.
The Board affirmed its decision that a merger of two or more not-for-profit organizations involves the creation of a newly formed entity as of the merger date. It clarified that in applying the carryover basis of accounting, the merged entity’s statement of activities and statement of cash flows for its first period should :(1) reflect the combined amounts of the merging entities’ net assets (in total and by classes of net assets) and cash as of the merger date in its opening amounts, and (2) include activity from the merger date through the end of the fiscal period. The opening amounts should be adjusted to conform the individual accounting policies of the merging entities at the merger date.
In addition, the Board decided to:
- Require that a newly merged public not-for-profit organization include specified pro forma pre-merger information as supplementary information.
- Require certain disclosures for mergers of not-for-profit organizations and acquisitions by not-for-profit organizations. (A draft of those disclosures is available on the FASB website.)
- Previously recognized goodwill assigned to a reporting unit predominantly supported by contributions and returns on investments be written off as a change in accounting principle and presented as proposed in paragraphs 63 and 64 of the goodwill Exposure Draft (which are based on Statement 142).
- Previously recognized goodwill be subject to the SFAS 142 transitional and ongoing impairment tests
- Require that all not-for-profit organizations apply the final statement in the first fiscal year beginning after December 15, 2009, and not provide a delayed effective date for small organizations.
- Prohibit early adoption of the final statement.
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