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Abstract(s)
The business combinations are a long-running controversial accounting issue. Two methods of accounting
have been generally accepted in practice since World War 11 in the USA, but recently, in 2001, FASB
banned pooling of interests and elected the purchase method as the single one for Mergers &
Acquisitions (M&A).
Although some restrictions on managers' discretion over accounting numbers are expected, some
accounting discretion will remain (Watts and Zimmerman, 1990). This managerial discretion can be used
to meet financial reporting objectives. The accounting choice has value implications. Several studies have
found that both acquirer and target companies select an accounting method based upon certain financial
and non-financial characteristics (Davis, 1990). The percentage of insiders' ownership, accounting-based
compensation plans, leveraged-based lending agreements, the company size and some other specific
characteristics determine which accounting method is selected (Dunne, 1990). For instance, managers
at companies with compensations based upon earnings favoured pooling of interest method because it
benefited earnings and return on investment (Gagnon, 1967; Aboody et al., 2000).
The aim of this paper is to study managers' reactions to new M&A accounting rules and its impacts on
the financial reporting and on the M&A activity in the USA Therefore, we investigate the impacts of new
FASB standards on the annual reports ( 1 0-K). We also developed a survey addressed to S&P 500
companies with the purpose to find any perceived economic effects from the new standards over the
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Citation
Ribeiro, Humberto; Crowther, David (2006). Reaction to new mergers & acquisitions accounting rules and its impacts in the USA. In British Accounting Association Annual Conference. Portsmouth, United Kingdom