business combination simplification

FASB issued ASU No. 2015-16Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments in September, 2015 as part of the Board’s Simplification Initiative.

Stakeholders had informed the Board that requirement to retrospectively apply adjustments made to provisional amounts recognized in a business combination added cost and complexity to financial reporting but did not significantly improve the usefulness of the information for users. The requirement to retrospectively account for those adjustments is eliminated by the amendments in this Update.

The amendments in ASU 2015-16 require:

  • An acquirer to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined.
  • An acquirer to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects resulting from the change to the provisional amounts. This effect is required to be calculated as if the accounting had been completed at the acquisition date.
  • An entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.

Early application is permitted, so the content will become testable in the April 2016 test window.