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U.S. GAAP Treatment of Business Combinations and Consolidated Financial Statements |
IFRS Treatment of Business Combinations and Consolidated Financial Statements |
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Poolings prohibited by FAS 141; consolidation rules effectively based on majority ownership criterion; closing date generally used for recognizing acquisitions (purchases)
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Poolings (unitings) eliminated by IFRS 3; consolidation rules based on control criterion; control date used for recognizing acquisitions (purchases) |
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Special consolidation requirements apply to Variable Interest Entities (VIE), consolidation by primary beneficiary generally required |
VIEs not yet addressed by IFRS but Special Purpose Entities consolidated under concept of control
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Recognize post-acquisition obligations only for exiting activities begun before merger, to be completed in one year
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Recognize post-acquisition obligations only for provisions that had been recognized by acquired entity |
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“Qualifying” SPEs to be consolidated if QSPE exceptions not satisfied
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No concept of QSPE |
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Consolidation of majority owned subsidiaries required unless control is not exercised by parent
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Consolidation required unless control is not exercised by parent, or unless control is temporary (to lapse within twelve months) |
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Step up to fair value only for majority (controlling) interest’s share; minority interest reported at preacquisition book value (but proposed change to full fair value method, including minority share plus goodwill likely to be adopted)
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Assets and liabilities recorded at full fair value, including minority interest’s share |
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Acquiree deferred tax recognized only after date of acquisition (i.e., having full valuation allowance at acquisition date) used to offset goodwill, then offset intangible assets, finally to offset tax expense
Subsequent creation of allowance for tax asset recognized in acquisition transaction effected via charge to tax expense
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Acquiree deferred tax recognized only after date of acquisition (i.e., having full valuation allowance at acquisition date) is effected as current period credit to tax expense and also goodwill adjustment as if adjustment occurred at acquisition date |
| No promulgated rules governing “parent company only” financial statements, but use of equity method would be acceptable |
In “parent company only” financials, the investment in subsidiaries, equity investees, and joint ventures may be presented at cost or under rules for investments in securities, but equity method cannot be used |
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Not necessary to conform parent and subsidiary accounting policies
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Need to conform parent and subsidiary accounting policies |
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Minority interest in consolidated subsidiary can be presented in liabilities, in equity, or in special category (but proposed change will re-quire inclusion in equity)
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Minority interest included in equity |
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Acquired in-process R&D expensed as purchased (but proposed change will permit capitalization), post-acquisition-date expenditures on IP R&D expensed
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Purchased in-process R&D capitalized, and subsequent expenditures generally are also capitalized and amortized |
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In bargain purchase situations, negative goodwill used to reduce most noncurrent assets’ carrying value, with any excess reported as extraordinary gain (proposed change to conform to IFRS approach)
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Negative goodwill reported as gain, with no offsetting against acquired assets |
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Use pooling-type accounting for mergers of entities under common control
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Use pooling-type accounting for mergers of entities under common control |
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Contingent consideration recognized when condition is eventually met (but proposed change would conform to IFRS approach)
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Fair value of contingent consideration included in purchase price allocation process |
| Goodwill not amortized, tested for impairment |
Similar to US GAAP, but different impairment testing procedures
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One year permitted to finalize purchase price allocation process, including resolution of preacquisition contingencies
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Similar to US GAAP |
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Combinations of entities under common control (“brother sister” mergers) accounted for at book value, like former poolings of interest
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No specific rules for “brother sister” mergers, so either purchase accounting or book value (pooling) accounting is acceptable per parent entity’s policy choice |
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Current accounting for step acquisitions treats each purchase separately, no remeasurement of previously recognized goodwill (proposed changes would revalue when control achieved)
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Similar to US GAAP (would be affected by currently proposed changes to both US GAAP and IFRS) |
| Accrued expense (reserves) can be recognized if post-acquisition restructuring of acquiree is planned |
Restructuring reserves generally not allowed, unless acquiree had recorded contingent liability before transaction
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