Acquisition Opportunities Face New Accounting Guidance


By Joe Bruce

As many contractors continue to closely monitor raw material prices, headcount and homebuilder confidence reports while vying for a share of the $787 billion tied to the American Recovery and Reinvestment Act of 2009 (ARRA), speculation continues on whether or not the markets have reached a low point and when we’ll slowly crawl out of this recession. Companies that survive this turbulent ride will emerge leaner and better positioned for immediate growth -- potentially by completing acquisitions that they bypassed during the past year’s poor economic conditions. Those potential buyers should be aware that, while they were focusing on their business, operations and general economic downturn, the accounting rules surrounding business combinations have changed.

Although Financial Accounting Standards Board (FASB) Statement No. 141(R) “Business Combinations” (FAS 141 (R)) was issued in 2007, its impact is effective for business combinations for which the acquisition date is on or after the first annual reporting period beginning on or after December 15, 2008. This means that for calendar year-end companies, FAS 141(R) will be effective for acquisitions dated on or after January 1, 2009.

FAS 141(R) establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired and liabilities assumed at fair value at the acquisition date, and also provides guidance on disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Joint ventures are excluded from the scope of this statement and the original pronouncement.

What a difference a year makes. A year ago, the Dow Jones Industrial Average hit a high over 13,000, the prime lending rate was 5%, regular unleaded gas was $3.69/gallon and the accounting guidance allowed acquisition-related costs such as advisory, legal, accounting, valuation and other professional fees to be capitalized. Just 12 short months later, the Dow has fallen to a 52 week low of 6,470, the prime rate is down to 3.25%, regular unleaded gas is $2.22/gallon and FAS 141(R) requires those acquisition costs to be expensed as incurred. Other changes to consider under the revised pronouncement include recording a “bargain purchase” through the income statement, while previous guidance required a pro-rata reduction of the acquired noncurrent assets.

So as you evaluate housing starts, building permits, lending rates and other indicators and contemplate your company’s future growth and potential acquisitions, remember that the accounting rules have changed the way you will record and disclose those acquisitions.  

Schneider Downs provides accounting, tax and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2019 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.