2021 Retirement Plan Limitations
On October 26, 2020, the Internal Revenue Service announced the cost-of-living adjustments (COLA) that will take effect January 1, 2021 (IRS Notice 2020-79). ...
Congratulations, your firm just acquired another company! You went through the long and arduous process of vetting and selecting the best acquisition target. Buyer and seller have done their due diligence, and are confident that it’s a beneficial deal for both sides. All agreements are signed, purchase consideration has been transferred and your firm is now the proud owner of a shiny new subsidiary. You can now sit back, relax and let the synergistic benefits roll in, right?
Of course, this is only just the beginning of a long process undertaken by all employees in the new combined organization to make sure the transaction is a success.
From an accounting standpoint, it is important for the acquirer to record the transaction appropriately on its annual financial statements. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 requires all business combinations to be accounted for using the acquisition method. ASC 805 states that the acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition date fair values. This article outlines some important questions that should be answered when preparing to record the newly acquired assets and liabilities.
You’ve acquired a new company. How do you record the assets and liabilities? Ask these key questions:
These are just some initial accounting questions that should be considered when acquiring a company. Discuss these items with your audit team early on to make sure everyone is on the same page in order to help reduce issues down the road.
How will you determine the value of the intangibles?
You will also likely need to engage an independent valuation specialist to assist with determining the fair value of intangible assets acquired, if any. A valuation analyst may also be needed to estimate the fair value of certain tangible assets (most commonly, inventory and property, plant and equipment) depending on the situation and materiality of these assets. Although your audit firm may have valuation expertise, it will likely not be able to perform the valuation in-house, due to independence issues.
Schneider Downs has significant experience in determining the fair value of intangible assets acquired and providing consulting and advisory services to make sure your business combination accounting is in full compliance with ASC 805. For more information about Schneider Downs’ business valuation and other business advisory services, please contact us at contactsd@schneiderdowns.com.
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