June 14, 2007

FASB Changes Some Business Combination Decisions on Contingencies; Close to Pre-Ballot Draft

From FEI’s “Financial Reporting” Blog: Yesterday, FASB voted to change a prior decision in its Bus Comb project, and voted today to simplify the standard by requiring that all noncontractual contingencies not recognized at the acquisition date (those that do not meet the more likely than not recognition threshold at the acquisition date) be accounted for post acquisition in accordance with FAS 5.

However, a majority of the board (4 of the seven board members) voted to retain a Fair Value (FV) measurement requirement for initial and subsequent measurement for all contractual contingencies and those noncontractual contingencies that meet the more likely than notrecognition threshold at the acquisition date. In response to comments about lack of cost-benefit in remeasuring these contingencies at FV, the board will conduct field trials during the period between issuance of the final Bus Comb standard – with staff suggesting a pre-ballot draft may be circulated by June 30 – and the implementation date of 2009.

Separately, some board members expressed concern with requiring this new (non-FAS 5) subsequent valuation at FV for contingencies just for Bus Comb, and FASB Chairman Bob Herz said there were other matters in the Bus Comb standard he would personally give subsequent FV treatment to which the other board members did not, such as acquired IPR&D. But, all Board members agreed FAS 5 needs to be amended, and Herz asked the staff come back to the board at a subsequent meeting with a proposed agenda decision to embark on a project to amend FAS 5, and to begin preparing an ED on it. The IASB is working on an amendment to IAS 37 on contingencies and the boards will talk about convergence issues. Further information on this and other issues addressed at today’s board meeting can be found in the FASB board handout.