Browsing by Author "Crowther, David"
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- Accounting for business combinations: (Un)desirable uniformity?Publication . Ribeiro, Humberto; Crowther, DavidFor many years, two methods existed alongside each other in the USA to account for business combinations: the pooling of interests method, applied to operations, such as mergers, that met all the conditions as stated at APB Opinion No. 16; and the purchase method for all other combinations. This dual accounting status was also widespread through many other countries, although some included substantial GAAP differences (e.g. USA versus UK) or applied restrictions to the application of those methods. The 1998 G4+1 Position Paper concerning business combinations recognized the inconvenience of this diversity in accounting and recommended the use of a single method, preferably the purchase method. Following a long period of discussion and controversy, as is usual when the business combinations topic is on the table, FASB published in 2001 the SFAS No. 141, which confirmed the purchase as the unique method for business combinations accounting. Simultaneously FASB also issued SFAS No. 142, which replaced goodwill amortization for impairment tests. In the meantime, IASB also started a business combinations project scheduled in two phases. The first has produced already IFRS 3, issued in March 2004, which also determined the purchase method as the single way for business combinations. The second phase is still in course and will provide guidance about the purchase method application (or ‘acquisition method’, as the board meanwhile decided to rename it). Once again, this topic has proved to be a very fertile ground for discussions, as IASB apparently dropped the ‘fresh start’ application and issued an ED with proposed amendments for the recently published IFRS 3. In the UK, business combinations accounting is still ruled by FRS 6 and FRS 7, which are not aligned with IFRS 3 and further IASB proposals. ASB is monitoring the IASB project and it is very likely to adopt its GAAPs, which means that business combinations accounting in the UK will change very soon. The accounting trend for business combinations seems now clear, but many questions remain, such as, was the pooling of interests method ban a major loss? Which challenges arise from replacement of goodwill amortization for impairment tests? With this paper the authors intend to discuss how and if business combinations accounting uniformity is indeed desirable, highlighting advantages and disadvantages, benefits and eventual problems for professionals and stakeholders. A final note to stress is that this paper deals with uniformity of business combinations accounting and not with international accounting harmonisation, to which we are required to refer since it is inherent to recent developments within this topic.
- Accounting for business combinations: lessons from the U.S.A.?Publication . Ribeiro, Humberto; Crowther, DavidThe number of different accounting practices at national level is considerable in Europe. The adoption of IAS/IFRS is a relevant step towards accounting harmonization in Europe, but also results in a dual accounting system for European companies. The accounting for business combinations provides a good example of profusion of different possible methods used by companies in different European countries, with implications on the comparability of financial statements. From the twenty-one European countries surveyed by FEE in 2002, only three did not allow the pooling of interests in any circumstance. In terms of purchased goodwill accounting, amortization was the default treatment. Fifteen countries had refutable amortization period limits, but ten countries had no absolute limits. Moreover, eight countries allowed write off to equity. If the accounting for business combinations in Europe was already a Tower of Babel, another level has been then added to it following IAS/IFRS adoption by EU. Within this dual accounting system, since 2005 listed companies ruled by the law of a Member State are required to prepare their consolidated accounts according IASB’s standards (EC, 2002). The matrix of possibilities has increased. Listed companies with consolidated accounts can only use purchase method, but pooling is still allowed for the remaining, except in few countries. Purchased goodwill is to be amortized by every company, using arbitrary ceilings; or is to be written off; or, finally, is to be subject to impairment tests by companies who adopted IFRS. The discrepancy among the different national GAAP is significant, and between these and IASB’s is huge. To mitigate these differences, some European countries are preparing changes in their national sets of accounting standards. Regarding business combination accounting, countries such as the U.K. (FRED 36 – 39, 2005), and Portugal (NCRF 14, 2007), have produced exposure drafts intended to align their national GAAP with IFRS 3. However, when does such changes will be enforced is unclear. The number of countries to follow these steps is also something to be known in the next years. On the other side of the Atlantic, from 2001 the purchased method is the single accounting method accepted, and purchased goodwill is to be tested using impairment tests. A major change that included every company in the U.S.A., regardless the company status, this is, being listed or reporting consolidated statements. The adoption of the new business combinations was controversial, as many argued it would produce significant economical effects. Several managers from high tech companies even argued that M&A activity would suffer if pooling were to be abolished. To verify whether the FASB new pronouncements have had impact on the M&A activity, we have carried out a study with the purpose to capture any possible effects from the adoption of the new accounting standards. We have found that the new accounting standards did not have any significant impact on the M&A activity in the U.S.A.. Accordingly, we argue that national European accounting boards should also follow IASB GAAP to enhance comparability among European companies involved in M&A deals.
- Business combinations accounting in the United States from AICPA to FASB: a study on the impact on M&A activityPublication . Ribeiro, Humberto; Crowther, DavidThis paper summarizes the problematic of accounting for business combinations since the 1960s. Albeit widely supported by the industry, the use of pooling of interests has been always subject to criticism, particularly from practitioners and academicians (see e.g. AAA, 1966; Mosich, 1968). In 1996, FASB added business combinations accounting to its agenda, with the purpose to improve its transparency. FASB would disallow the use of pooling of interests, despite numerous negative reactions from industry. Nevertheless, a later proposal of replacement of purchased goodwill amortization by impairment testing seems to have mitigated any outstanding criticism. Several authors (e.g. Zeff, 2002) described the fierceness of the lobbying on this FASB’s project. The paper studies whether SFAS 141 and SFAS 142 resulted in relevant economic consequences (see e.g. Zeff, 1978; Burchell et al., 1980; FASB, 1980) and finds that M&A activity has not been significantly affected by FASB’s changes
- Companies and professional boards’ reactions to new M&A accounting in the USAPublication . Ribeiro, Humberto; Crowther, DavidFollowing G4+1 recommendations issued after a meeting in 1998, the Financial Accounting Standards Board (FASB) reshaped dramatically in 2001 the accounting for business combinations, which had remained unchanged for thirty years in the USA. With the publication of SFAS 141, FASB dropped pooling of interests method in favour of purchase method and with SFAS 142 amortization of goodwill recognized as result of a business combination was replaced by impairment tests. Business combinations includes a wide range of deals, such as mergers and acquisitions (M&A), and is arguably one of the most polemic accounting topics ever. AICPA APB opinions issued in 1970 seemed to have praised almost everybody – difficult task given the different views about the most appropriate practice to adopt – although some prominent authors, such as Stephen Zeff, remained opponents of pooling of interests. Others always defended that pooling was the fair method for the real and true mergers and therefore strongly disagreed with G+1 and FASB views, stressing that the new rules would turn impracticable some mergers deals with specific characteristics. The FASB certainly did not intend to change the M&A market dynamic through its new set of accounting rules. Nevertheless, the critical voices raised against the pooling method ban suggested that the M&A activity could have been affected. Therefore, the authors of this paper considered relevant to discuss potential impacts of this new standards. Preliminary results obtained with questionnaires sent to firms included in S&P 500 index will be also presented.
- Reaction to new mergers & acquisitions accounting rules and its impacts in the USAPublication . Ribeiro, Humberto; Crowther, DavidThe 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