![]() ![]() Once the post-acquisition financial statements are filed, a nonregistered accountant could not perform the work on the restatement of or retrospective application of a change in accounting principle in the pre-acquisition financial statements or otherwise update or dual date its report on those financial statements because those financial statements become the registrant’s financial statements on the date the post-acquisition financial statements are filed. A nonregistered accountant could also audit a restatement of the accounting acquirer’s financial statements for periods ended prior to the consummation of the acquisition up until the date that the first periodic report is filed that contains post-merger financial statements. A nonregistered accountant could reissue its opinion on the pre-acquisition financial statements of the accounting acquirer after consummation of the acquisition. Accordingly, an evaluation of the specific facts and circumstances would be necessary if an entity asserts that a forecasted acquisition is probable of occurrence.The auditor of the S-X 3-05 or S-X 8-04 financial statements of an accounting acquirer/legal acquiree that is a non-public company need not be registered with the PCAOB because the pre-consummation financial statements are not those of an issuer on the date of the filing. The ability to support an assertion that a business combination is probable of occurrence and achieve hedge accounting for these types of hedges will be rare given the number of conditions that typically must be met before an acquisition can be consummated (e.g., satisfactory due diligence, no material adverse changes/developments, shareholder votes, regulatory approval). While it may be argued that hedge accounting should be acceptable theoretically, practically it may not be possible to achieve because a forecasted transaction can qualify for hedge accounting under ASC 815 only if it is probable of occurrence. Hedges of other items in contemplation of a business combination (e.g., the forecasted interest expense associated with debt to be issued to fund an acquisition or the forecasted sales associated with the potential acquiree) generally do not qualify for hedge accounting and should be accounted for separately from the business combination. For example, if the acquiree has an investment in debt securities of the acquirer with a fair value of $110 million due to a change in market interest rates since issuance and the carrying amount of the debt payable on the acquirer’s books is $100 million, the acquirer would recognize a settlement loss of $10 million on the acquisition date (reflecting the notion that the debt was settled at $110 million). In addition, the consideration transferred by the acquirer would exclude the fair value of the debt ($110 million), as this would be viewed as being outside of the acquisition. An extinguishment gain or loss is recognized in earnings for the difference between the reacquisition price (fair value or stated settlement amount) and the carrying amount of the debt in accordance with ASC 470-50-40-2. If debt is settled (extinguished) prior to maturity, the amount paid upon reacquisition of debt may differ from the carrying amount of the debt at that time. If the preexisting relationship effectively settled is a debt financing issued by the acquirer to the acquiree, the guidance in ASC 470, Debt should be applied. ![]() Transfers and servicing of financial assets Revenue from contracts with customers (ASC 606) Loans and investments (post ASU 2016-13 and ASC 326) Investments in debt and equity securities (pre ASU 2016-13) ![]() Insurance contracts for insurance entities (pre ASU 2018-12) Insurance contracts for insurance entities (post ASU 2018-12) IFRS and US GAAP: Similarities and differences Business combinations and noncontrolling interestsĮquity method investments and joint ventures This year’s report provides technical insights on accounting rules that went into effect in 2019, such as the new leasing requirements for public companies, revenue recognition for private companies, and other changes to existing U.S. ![]()
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