The FASB recently released a proposed accounting standard update (“ASU”) meant to simplify the accounting for provisional amounts recognized in a business combination.
Because the acquirer may have limited access to information from the acquiree or because of timing of an acquisition in relation to the acquirer’s financial statement reporting date, the acquirer may need to record provisional amounts for the business combination. These provisional amounts are based on the acquirer’s best estimates using information obtained as of the reporting date. The acquirer has a period of time (the “measurement period”) after the acquisition date in which they may make adjustments to the provisional amounts that were recorded. The measurement period may not exceed one year from the acquisition date and it ends as soon as the acquirer receives all the necessary information about facts and circumstances that existed as of the acquisition date.
Currently, any adjustments to the provisional amounts are made retrospectively by restating the prior period information. The acquirer must revise comparative information for prior periods presented in financial statements as needed, including any changes in depreciation, amortization and any other income effects resulting from the adjustments.
The proposed ASU, Simplifying the Accounting for Measurement-Period Adjustments would require the acquirer to recognize any adjustments to provisional amounts in the reporting period in which the adjustment is determined, rather than recording the adjustment retrospectively. They would record, in that same period’s financial statements, any earnings or income effects, if any, resulting from the adjustment in the provisional amounts. The effect would be calculated as if the accounting had been completed as of the acquisition date.
The FASB has asked for comments on the proposal to be submitted by July 6, 2015. If it is approved, the ASU would be applied prospectively to adjustments to provisional amounts identified after the effective date of the ASU that are within the measurement period. The FASB has not yet announced whether they will allow early adoption of the ASU if it is approved.
Download the proposed ASU, here.