Auditing Special Purpose Frameworks - Part 8: Stock-based Comp, Business Combinations, and More

Business Combinations
US GAAP: The acquisition method of accounting is required. The acquisition-date fair values of assets, liabilities, goodwill, and noncontrolling interests in an acquired entity are used for measurement in financial reporting.
 
FRF for SMEs: This framework essentially requires the acquisition method of accounting using acquisition-date market values. It permits, however, management to elect to account for an intangible asset either separately or as a part of goodwill. General disclosures similar to US GAAP are required for material and immaterial business combinations. 
 
Push-Down (New Basis) Accounting
US GAAP: There is no requirement to permit new basis accounting for acquired entities.
 
FRF for SMEs: When an acquirer gains more than 50 percent control of an entity, the assets and liabilities of the acquired entity may be comprehensively revalued in its financial statements, assuming the new values are reasonably determinable. This results in similar values being used in the acquired entity’s financial statements and the acquirer’s consolidated statements. General disclosures include:
  • First applications:
    • Date push-down accounting was first applied and the date of the related purchase transaction.
    • Description of the situation resulting in push-down accounting and the amounts of changes to major classes of assets, liabilities, and equity.
  • In addition for the following fiscal period:
    • Amount of the revaluation adjustment and the equity account in which it was recorded.
    • Amount of reclassified retained earnings and the equity account in which it was recorded.
The next article in this series will begin a step-by-step approach to performing small audits of special purpose frameworks, focusing primarily on the FRF for SMEs. As a reminder, my free one-hour webcast presenting an overview of the FRF for SMEs is on February 25, 2014; you can register for the webinar here.