“FASB has been doing a good job giving guidance on these matters,” says Coté. “They are just continuing to refine the guidance to make reporting more comparable across companies. And that is absolutely a good thing.”
What’s Next? Commissions?
While the proposals may make abuses of merger reserves far less likely, they still leave plenty of room for faulty estimates — which may, of course, reflect a great deal of speculation, even after an “obligating event” has occurred. Severance payments, lawsuit-related liabilities, and other postmerger items generally must be estimated at the point when the layoffs are planned or the suits are filed, for example. But, unless U.S. businesses move fully away from accrual accounting, that’s unlikely to change.
One major contribution of these latest changes, says FASB’s Bossio, is that they will bring FASB rules into harmony with the International Accounting Standards Board requirements for business-combination accounting.
In advance of the official exposure draft, FASB has not yet received much push-back about the proposals. (It has already recorded objections, however, from member-owned companies and collaboratives, as well as mutually held insurance companies, all of which had been excluded from coverage under FAS 141′s nonpooling rules.) If passed, the rules would take affect in fiscal years beginning after December 15, 2005.
How much further could the application of fair value extend? Some see it eventually affecting any asset purchase with hefty transaction-cost elements, such as delivery and setup charges. And not everyone agrees this would be good.
If regulators are going to change such a basic thing as merger-cost accounting, “we have to look at a lot of other transactions as well, like investments,” says Georgia Tech’s Mulford. “Are we going to start breaking out commission charges now?”
Kris Frieswick is a senior writer at CFO.