The International Accounting Standards Board (IASB) and FASB issued their first joint exposure draft, Business Combinations: A Replacement of FASB Statement No. 141 [SFAS 141(R)], on June 30, 2005, with a comment deadline of October 28, 2005. SFAS 141(R) is a significant step forward in the working relationship of the two standards-setting bodies. Moreover, the ultimate outcome of the deliberation process related to this exposure draft (ED) may impact perceptions of the success of the convergence of international and U.S. accounting standards. Respondents to the ED included the major constituents of the IASB and FASB as well as other national accounting standards-setting bodies. The comment letters filed with the IASB and FASB reveal some of the potential implications of the proposed revision to SFAS 141. This review of the IASB/FASB proposal is divided into two parts: the overarching conceptual changes proposed, and the practical implications in the context of current accounting standards.
Conceptual Changes
Although the IASB and FASB’s conceptual frameworks state that information is useful if it is relevant and reliable, there has been a deliberate focus recently on improving relevance at the expense of reliability, as demonstrated in recent pronouncements in the areas of pensions, investments in securities, impairment of long-lived assets, goodwill impairment, asset retirement obligations, derivatives, and cash flow (see FASB Concept Statement 7). SFAS 141(R) continues this course with a focus on fair valuation. Exhibit 1 summarizes the two conceptual changes proposed in the ED: the conceptual view of the combined entity and the determination of the acquisition value.
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