By Denise Lugo
The Financial Accounting Standards Board said it would finalize proposed rules that it hopes will remove the cost and complexity that comes from having to retrospectively account for measurement period adjustments when accounting for business combinations.The proposal addresses provisional amounts—temporary estimates—that are recorded by an acquirer in its initial accounting for a business combination. The adjustments made to provisional amounts during the measurement period is currently required to be done on a retrospective basis.FASB Aug. 5 reaffirmed that it would eliminate this requirement to retrospectively record the adjustments.Instead, companies will be allowed a simpler approach, whereby an acquirer in a business combination would recognize the adjusted provisional amount in the period in which the adjustment is determined, the board said.In the same period's financial statements, the acquirer will also be required to record the effects on earnings of the adjustments, including depreciation and amortization.Companies may, but aren't required to, break out on the face of the performance statement the difference between current year depreciation and prior year depreciation, board discussions indicated.Disclosure of the amount of the adjustment recorded by line item will also be required.Allows Early Adoption With Caveat The rules will be effective for periods beginning after Dec. 15, 2015, for all companies, but allow for earlier application, FASB said.Earlier application is allowed, provided a company's financial statement hasn't yet been issued, or, in the case of private companies, the statement has been made available for issuance, the discussions indicated.In terms of transition, FASB said the rules should be applied prospectively to adjustments made to provisional amounts that are identified after the effective date and that are within the measurement period.Transition disclosures will also be required about the nature and reason for the change.Background FASB issued the proposal, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, in May.The board said it received 30 comment letters by its July 6 deadline. Most respondents agreed with the proposed changes.This article first appeared in the Accounting Policy & Practice Report, the highly-respected news component of Bloomberg BNA. For more information about this comprehensive research service,...