No. 2015-62
28 September 2015
To the Point
FASB — final guidance
FASB simplifies measurement-period
adjustments in business combinations
Measurementperiod adjustments
will no longer be
accounted for
retrospectively.
What you need to know
•
The FASB issued new guidance that eliminates the requirement that an acquirer in a
business combination account for measurement-period adjustments retrospectively.
•
Instead, an acquirer will recognize a measurement-period adjustment during the
period in which it determines the amount of the adjustment.
•
The guidance is effective for public business entities for fiscal years beginning after
15 December 2015, and interim periods within those fiscal years. For all other entities,
it is effective for fiscal years beginning after 15 December 2016, and interim periods
within fiscal years beginning after 15 December 2017. Early adoption is permitted.
Overview
The Financial Accounting Standards Board (FASB or Board) issued an Accounting Standards
Update 1 (ASU) that eliminates the requirement for an acquirer in a business combination to
account for measurement-period adjustments retrospectively.
Instead, acquirers must recognize measurement-period adjustments during the period in which
they determine the amounts, including the effect on earnings of any amounts they would have
recorded in previous periods if the accounting had been completed at the acquisition date.
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Background
An acquirer in a business combination must identify and measure all aspects of the business
combination in accordance with Accounting Standards Codification (ASC) 805. 2 If the initial
accounting for the business combination is incomplete as of the end of the reporting period in
which the acquisition occurs, the acquirer records provisional amounts based on information
available at the acquisition date.
The acquirer then adjusts these amounts as it obtains more information about facts and
circumstances that existed as of the acquisition date. This period is called the measurement
period. It ends when the acquirer receives the information it was seeking about facts and
circumstances that existed as of the acquisition date or when it determines that it cannot
obtain more information. The measurement period cannot exceed one year from the date of
the acquisition.
Under current guidance, an acquirer must recognize adjustments to provisional amounts during
the measurement period retrospectively (i.e., as if the accounting for the business combination
had been completed at the acquisition date). That is, the acquirer must revise comparative
information on the income statement and balance sheet for any prior periods affected.
Key considerations
The Board expects the ASU to eliminate costs related to retrospective application without
significantly reducing the relevance of information provided because the effects of changes to
provisional amounts recognized in a business combination will be disclosed or presented
separately in the income statement.
Under the ASU, acquirers must recognize measurement-period adjustments in the period in
which they determine the amounts, including the effect on earnings of any amounts they would
have recorded in previous periods if the accounting had been completed at the acquisition date.
The acquirer still must disclose the amounts and reasons for adjustments to the provisional
amounts. The acquirer also must disclose, by line item, the amount of the adjustment reflected in
the current-period income statement that would have been recognized in previous periods if the
adjustment to provisional amounts had been recognized as of the acquisition date. Alternatively,
an acquirer may present those amounts separately on the face of the income statement.
The ASU does not change the criteria for determining whether an adjustment qualifies as a
measurement-period adjustment and does not change the length of the measurement period.
The ASU results in differences between US GAAP and IFRS, which are currently aligned on
this topic.
Transition and effective date
The ASU is effective for public business entities for fiscal years beginning after 15 December
2015, and interim periods within those fiscal years. Early adoption is permitted for any interim
and annual financial statements that have not yet been issued. For all other entities, it is
effective for fiscal years beginning after 15 December 2016, and interim periods within fiscal
years beginning after 15 December 2017. Early adoption is permitted for any interim and
annual financial statements that have not yet been made available for issuance.
The ASU is applied prospectively to adjustments to provisional amounts that occur after the
effective date. That is, the ASU applies to open measurement periods, regardless of the
acquisition date.
2 | To the Point FASB simplifies measurement-period adjustments in business combinations 28 September 2015
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How we see it
Companies with open measurement periods may want to early adopt the guidance to
simplify their reporting for the current year.
Endnotes:
1
2
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SCORE No. BB3052
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ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.
ASC 805, Business Combinations.
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3 | To the Point FASB simplifies measurement-period adjustments in business combinations 28 September 2015