Business Combinations and Consolidated Financial Statements

Business Combinations and Consolidated Financial Statements

Summary of Selected Provisions of FASB Exposure

On June 30, 2005, the Financial Accounting Standards Board issued two exposure drafts intended to replace two current authoritative standards. The first exposure draft, Business Combinations, would replace Statement of Financial Accounting Standards No. 141. The second, Consolidated Financial Statements, Including Accounting and Reporting of Noncontrolling Interests in Subsidiaries, would replace Accounting Research Bulletin No. 51. Both statements are expected to be effective for annual periods beginning on or after December 15, 2006, although the FASB could delay implementation based on comments received and future deliberations. Both statements are to be implemented at the same time.

The EDs propose many changes in accounting for business combinations and the presentation of consolidated financial statements. The most important changes are as follows:

a shift from focusing on the cost of an acquired company to its fair value

a change from recognizing only the acquiring company's share of the excess of cost over the book value of an acquired company in a less-than-100-percent acquisition to recognizing the full fair value of the acquired company, regardless of the percentage ownership acquired

change to including in the amount of the noncontrolling interest its share of the fair value of the assets acquired and liabilities assumed and a share of goodwill, if any

specifying that the noncontrolling interest in a subsidiary is an element of equity and requiring that a noncontrolling interest in a subsidiary be reported in the consolidated balance sheet within stockholders' equity rather than the current practice of permitting companies to choose whether to report a noncontrolling interest as equity, a liability, or between equities and liabilities

broadening the types of business combinations covered by the pronouncements to include combinations of mutual entities and combinations not effected through an exchange transaction

requiring acquisition-related costs to be expensed rather than capitalized

requiring an acquirer to revalue any equity interests in the acquiree already held to fair value at the acquisition date and recognize a gain or loss for the change in value

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