The FASB on June 15, 2022, unanimously voted to drop its project aimed at improving the accounting for asset acquisitions and business combinations, stating the case for rule changes had not been made
The five-year-old project aimed to narrow differences between acquisition models.
Staff’s latest research had been on potential alternatives for the initial and subsequent accounting for contingent consideration arrangements in a business combination, according to the discussions.
“I think that one of the most important objectives was to be able to narrow the differences, and I don’t think that we’ve heard a resounding need to change acquisition accounting here for some of those items,” FASB member Susan Cosper said. “And so with that in mind I think that some of the other areas that were posed as part of the [invitation-to-comment] feedback are clearly able to be subsumed into other projects,” she said. “I don’t think the feedback in the [invitation-to-comment] process was overwhelming either in terms of continuing with this project and so as I think about the board’s priorities I would vote to drop this project.”
Cosper was referring to Invitation-to-Comment ITC) No. 2021-004, Agenda Consultation, which the board issued in June 2021 to solicit public comment about its five-year technical agenda for 2022 to 2026.
The ITC received lukewarm responses on the topic, according to meeting papers.
The project was added to the board’s technical agenda in August 2017 as Phase 3 of definition of a business, following the completion of Phase 1 and Phase 2.
The completion of Phase 1 and Phase 2 resulted in the issuance of Accounting Standards Updates (ASU) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, and ASU No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, respectively.
While the amendments in Update No. 2017-01 narrowed the definition of a business, which resulted in more transactions being accounted for as asset acquisitions (or the derecognition of assets), differences between the accounting for acquisitions and disposals of businesses and assets still exist.
But efforts to fix those differences under the Phase 3 project started to delve into other waters, board discussions indicated.
“I would like to point out we’ve been working on this project for seven years, and I do not believe we have made even one decision that actually narrowed the differences between asset acquisition and business combination accounting,” FASB member Christine Botosan said. “We’ve made decisions to increase the scope, we’ve made decisions to reduce the scope, but we actually have not made any consequential decisions that advance us toward the objective of the project and I think that’s because we can’t even agree on where the case for change lies,” she said. “And so I think that there isn’t a feasible path forward, and we should invest our resources in other more important topics and topics where we have a better path forward.”
This is the second project the board dropped this week, ditching years of work after not hearing the needed clamor for change to justify rulemaking. At the same meeting the board dropped its project to revise the subsequent accounting of goodwill. (See In a Surprising Move, FASB Drops Project on Subsequent Accounting of Goodwill in the June 16, 2022, edition of Accounting & Compliance Alert.)
This article originally appeared in the June 17, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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