The goal of FAS 141R is to harmonize international standards with U.S. GAAP principles when accounting for business combinations, and to reduce the costs and complexity associated with the reporting process (particularly for multinational corporations that were previously required to record results using various local standards). This sounds like a step in the right direction, but what are we really getting?
In a CFO.com article titled Rule Makes Execs Think Twice About Dealmaking, Jay Hanson, National Director of Accounting for McGladrey & Pullen, LLP, was quoted saying "The most difficult part of implementing FAS 141R is coming to grips with fair-value principles that were never required before." Hanson went on to say that the new requirement to record estimated contingent consideration on the day of the sale, as opposed to when paid out, could cause potential problems. Because the difference between the fair value and that which is ultimately paid out is recorded as either a gain or a loss, tensions could arise between firms and auditors because firms may seek high estimates in the hopes of boosting earnings when the payout is made.
CFO.com’s article also included statistics from a Deloitte survey of 1,850 executives asked about the impact of FAS 141R. 40% said it would cause them to "rethink" deal strategy and affect planned deal activity, while only 4% said their companies have already finished assessing the valuation impact of the new rule.
To read the full assessment of the impact and controversy of FAS 141R by CFO.com, click here. To read the full results of Deloitte’s survey, click here.
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