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FAF releases review of statement 141R

The Financial Accounting Foundation (FAF) has completed its Post-Implementation Review (PIR) of FASB Statement 141R, Business Combinations. The statement is intended to improve the relevance of reports on business combinations and their effects.

Statement 141R, codified in Accounting Standards Codification Topic 805, Business Combinations, requires the recognition by an acquiring organisation of "the assets acquired, the liabilities assumed and any non-controlling interest in the acquired organisation at the acquisition date".

The statement was found by the PIR to have resolved some of the issues with the purchase method of accounting for business combinations; its principles being understandable and applicable; and the usefulness of the resulting information.

The review, undertaken by an independent team working under the oversight of the FAF Board of Trustees, and based on input from investors and other financial statement users, reached several conclusions, including that:

Statement 141R includes unresolved practice issues, such as identifying when a new accounting basis is appropriate and accounting for combinations under joint control. In addition, it was found to be not fully convergent with IFRS 3.

Stakeholders still have issues understanding some principles and requirements, most prominently with relation to measuring fair value.

Some statement users also question the reliability and usefulness of information such as that the inclusion of assets and liabilities which are difficult to measure at fair value, result in a bargaining purchase, or may in substance be asset purchases.

The costs and complexity of applying Statement 141R are higher than anticipated by FASB, and smaller organisations may face additional costs "for timely access to external resources".

The team also recommended improving the standard-setting by: enhancing the identification, tracking and resolution process for financial reporting issues; identifying the need a project will address, including the resumption of a project, and consistently conducting research into agenda setting and deliberation.

The International Accounting Standards Board (IASB) is currently conducting its own PIR of International Financial Reporting Standards (IFRS) 3, issued at the same time as Statement 141R.

Leslie Seidman, chairman of the FASB, said, "The post-implementation review report on Statement 141R identified many positive aspects of the business combinations standard, including the resolution of prior practice issues as well as enhancements in the usefulness of information about a business combination. The report also identified some stakeholder concerns, many of which the Board has already begun to address, for example, push-down accounting and the definition of a business. Because this is a converged standard, we plan to coordinate our review efforts with the IASB."

Meanwhile, the FAF will start a PIR team review of Statement 157, which defines fair value and establishes a framework for measuring it, and expands disclosures about its measurements, and will be open for participation online.

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