July 21, 2005

Proposed New Accounting Standards for M&A

Last month, the FASB and IASB proposed a standard — one of the most ambitious under the FASB/IASB convergence agenda — that would replace the existing requirements of FASB Statement No. 141, Business Combinations, and IFRS 3. FASB and IASB made their proposals in separate exposure drafts (here is the FASB’s exposure draft); the comment period ends October 28.

The proposals retain the fundamental requirement of IFRS 3 and Statement 141 that all business combinations be accounted for using a single method in which one party is always identified as acquiring the other. The major changes include a proposal that the acquired company must be measured at fair value; that goodwill attributable to any noncontrolling interests (not just the portion attributable to the acquirer) must be recognized; and that there would be fewer exceptions to measuring at fair value