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Business and Policy Areas
Business and Policy Areas

FASB Issues Exposure Draft on Mergers and Acquisitions

October 9, 2006

On October 9, the FASB issued an exposure draft titled, “Not-for-Profit Organizations: Mergers and Acquisitions.”  The ED culminates years of work by the FASB in the area of not-for-profit business combinations. The proposed statement would eliminate the use of the pooling method of accounting by not-for-profit organizations and require the application of the acquisition method to any merger or acquisition.

FASB believes that virtually all mergers and acquisitions are substantially the acquisition of net assets. The proposed statement defines a merger or acquisition by a not-for profit organization as any event that results in the initial recognition of another business or nonprofit activity (acquiree) in the financial statements of a not-for-profit organization. The proposed statement would retain the existing authoritative guidance (AICPA Statement of Position 94-3) in determining whether another entity should be consolidated.

Independent institutions with mergers or acquisitions would be required to apply the provisions in the ED prospectively in the fiscal year that begins approximately six months after the issuance of the final statement.  NACUBO encourages independent institutions to read and respond to the questions outlined in the ED by the comment deadline, January 29, 2007.  NACUBO plans to comment based on input from NACUBO’s Accounting Principles Council, but encourages all members to provide insights and contribute to the letter.  Finally, the FASB plans to hold one or more public roundtable meetings in Norwalk, Connecticut, on March 27, 2007, to discuss the ED.  Members with either feedback on the ED or an interest in attending the public roundtables should contact Sue Menditto, director, accounting policy.

Highlights and requirements of the exposure draft include:

• Distinctions between an acquisition of a business or nonprofit activity and a purchase or contribution of a group of assets.
• The identification of an acquirer in all mergers and acquisitions.
• Recognition of the identifiable assets acquired and liabilities assumed that compose the acquiree.
• Recognition of assets acquired and liabilities assumed at their acquisition-date fair values.
• Separate recognition (on the acquisition date) at fair value of identifiable intangible assets acquired, with the exception of an assembled workforce.
• The recognition of either the goodwill purchased or the contribution inherent in the merger or acquisition based upon calculation and measurement as a residual value rather than measured at fair value.
• The provision for a measurement period after the acquisition date during which the acquirer may adjust provisional amounts recognized at the acquisition date.
• An assessment by the acquirer of the appropriateness of bundling of multiple transactions.
• Broad disclosure objectives supplemented by specific minimum disclosure requirements (outlined in paragraphs 64-75 of the ED).
• Additional disclosure requirements by not-for-profits that issue public debt securities or are obligated for public conduit debt securities issued by governmental issuers.
• The establishment of standards for the accounting and reporting of non-controlling ownership interests in the consolidated financial statements of a not-for-profit organization and for the loss of control of subsidiaries.