Accounting Update: A Review of Recent Activities (2009-2010 Edition)

• Chapter 1 - The U.S. GAAP Hierarchy and FASB Accounting Standards Codification™
  • Learning Objectives
  • Introduction
  • Pre-Chapter Quiz
  • The Hierarchy of Generally Accepted Accounting Principles
    • Introduction
    • U.S. GAAP Hierarchy
    • Effective Date
    • Proposed Statement of Financial Accounting Standards, The Hierarchy of Generally Accepted Accounting Principles–a replacement of FASB Statement No. 162
  • The FASB Accounting Standards Codification™
    • Key Items Regarding the FASB ASC
    • Population of FASB ASC
    • Essential and Nonessential Content
    • Topical Structure
    • Referencing the FASB ASC
    • A Helpful Tool
  • Questions
• Chapter 2 - Recent FASB Pronouncements
  • Learning Objectives
  • Introduction
  • Pre-Chapter Quiz
  • Accounting for Financial Guarantee Insurance Contracts
    • Scope
    • Unearned Premium Revenue and Premium Receivable
    • Subsequent Measurement
    • Premium Revenue Recognition
    • Claim Liability
    • Disclosures
    • Effective Date and Transition
  • Business Combinations
    • Introduction
    • Scope
    • Key Terms
    • Identifying a Business Combination
    • The Acquisition Method
    • Disclosures
    • Effective Date and Transition
  • Noncontrolling Interests in Consolidated Financial Statements
    • Scope
    • FASB ASC 810, Consolidation (SFAS No. 160)
    • Noncontrolling Interest in a Subsidiary
    • Deconsolidation of a Subsidiary
    • Disclosures
    • Effective Date and Transition
  • Enhanced Disclosure Requirements for Derivative Instruments and Hedging Activities
    • Introduction
    • Summary
    • Effective Date and Transition
  • Fair Value Measurements
    • Introduction
    • Scope
    • Measurement
    • Valuation Techniques
    • Fair Value Hierarchy
    • Disclosures
    • Effective Date and Transition
  • FASB Staff Positions Relating to Fair Value Measurements
    • FSP FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13
    • FSP FAS 157-2, Effective Date of FASB Statement No. 157
    • FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active
    • Proposed FSP No. FAS 157-e, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed
    • Proposed FSP FAS 115-a, FAS 124-a, and EITF 99-20-b – Recognition and Presentation of Other-Than-Temporary Impairments
  • The Fair Value Option for Financial Assets and Financial Liabilities
    • The Fair Value Option
    • Key Terms
    • Applying the Fair Value Option
    • Presentation of Items Measured at Fair Value
    • Disclosure Requirements
    • Application to Not-for-Profit Organizations
    • Effective Date
  • Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans
    • Introduction
    • Changes to Accounting for Defined Benefit Pension and Other Postretirement Plans
    • Reporting by a Business Entity
    • Reporting by a Not-for-Profit Organization
    • Effective Dates
    • Transition
    • FSP FAS 158-1, Conforming Amendments to the Illustrations in FASB Statements No. 87, No. 88, and No. 106 and to Related Staff Implementation Guides
  • Accounting for Uncertainty in Income Taxes
    • Interpretation
    • Effective Date and Transition
  • FSPs Related to Accounting for Uncertainty in Income Taxes
    • FSP FIN 48-1, Definition of Settlement in FASB Interpretation No. 48
    • FSP FIN 48-3, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises
    • Disclosures
    • Deferral of the Effective Date
  • Questions
• Chapter 3 - FSPs, EITF and Derivative Issues
  • Learning Objectives
  • Introduction
  • Pre-Chapter Quiz
  • FASB Staff Positions
    • Introduction
    • Final FSPs
    • Proposed FSPs
  • Recent EITF Issues
    • EITF Issue No. 08-10 (Draft), Selected Statement 160 Implementation Questions
    • EITF Issue 08-9 (Draft), Milestone Method of Revenue Recognition
    • Issue 08-8, Accounting for an Instrument (or an Embedded Feature) with a Settlement Amount That Is Based on the Stock of an Entity’s Consolidated Subsidiary
    • Issue 08-7, Accounting for Defensive Intangible Assets
    • Issue 08-6, Equity Method Investment Accounting Considerations
    • EITF 08-05, Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement
    • Issue 08-4, Transition Guidance for Conforming Changes to Issue No. 98-5
    • EITF 08-03, Accounting by Lessees for Nonrefundable Maintenance Deposits
    • 08-2, Lessor Revenue Recognition for Maintenance Services
    • 08-1, Revenue Recognition for a Single Unit of Accounting
  • EITF Topics
    • Topic No. D-98, Classification and Measurement of Redeemable Securities
  • Derivatives Implementation Issues
    • Proposed Issue No. C22, Scope Exceptions Related to Embedded Credit Derivatives
    • Issue No. B12, Embedded Derivatives: Beneficial Interest Issued by Qualifying Special-Purpose Entities (Revised 9/15/2008)
    • DIG Issue No. I1, Disclosures: Interaction of the Disclosure Requirements of Statement 133 and Statement 47 (Revised 4/21/2008)
    • Issue K04, Miscellaneous: Income Statement Classification of Hedge Ineffectiveness and the Component of a Derivative’s Gain or Loss Excluded from the Assessment of Hedge Effectiveness (Revised 4/21/2008)
    • Issue E23, Hedging–General: Issues Involving the Application of the Shortcut Method under Paragraph 68 (Posted 1/10/2008)
  • Questions
• Chapter 4 - FASB Exposure Drafts
  • Learning Objectives
  • Introduction
  • Pre-Chapter Quiz
  • Proposed SFAS – Not-for-Profit Organizations: Mergers and Acquisitions
    • Background
    • Tentative Conclusion
    • Introduction
    • Scope
    • Key Terms
    • The Acquisition Method
    • Determining the Acquisition Date
    • Recognizing and Measuring the Identifiable Assets Acquired and the Liabilities Assumed
    • Exceptions to the Recognition Requirements
    • Measurement Requirements
    • Exceptions to the Fair Value Measurement Requirements
    • Recognizing and Measuring either Goodwill Acquired or a Contribution Received
    • Measurement Period
    • Assessing What Is Part of the Merger or Acquisition
    • Presentation
    • Disclosures
    • Effective Date and Transition
  • Proposed SFAS – Not-for-Profit Organizations: Goodwill and Other Intangible Assets Acquired in a Merger or Acquisition
    • Introduction
    • Scope
    • Intangible Assets Other Than Goodwill
    • Goodwill
    • Reporting Unit
    • Operating Segments
    • Assigning the Assets Acquired and Liabilities Assumed to the Reporting Units
    • Determining a Reporting Unit’s Primary Support
    • Applying the Qualitative Evaluation
    • Applying the Fair-Value-Based Evaluation
    • Goodwill Impairment Evaluation by a Subsidiary
    • Goodwill Impairment Evaluation When a Noncontrolling Ownership Interest in a SubsidiaryExists
    • Equity Method Goodwill
    • Financial Statement Presentation of Goodwill and Related Impairment Losses
    • Disclosures
    • Effective Date and Transition
  • Proposed SFAS – Going Concern
    • Summary
  • Proposed SFAS – Subsequent Events
    • Summary
  • Proposed FAS – Consolidated Financial Statements: Purpose and Policy
    • Introduction
    • Definition of Control
    • Implementation Guidance
    • Next Steps
  • Proposed FAS – Disclosure of Certain Loss Contingencies
    • Introduction
    • Required Disclosures
    • Tabular Reconciliation and Related Disclosures
    • Subsequent Events
    • Exemption from Disclosing Prejudicial Information
    • Effective Date
  • Proposed SFAS – Earnings per Share
    • Introduction
    • Amendments
    • Effective Date and Transition
  • Proposed SFAS – Accounting for Hedging Activities
    • Objectives
    • Hedge Effectiveness Requirements
    • Removal of Designation of Effectiveness
    • Hedged Risk
    • Measurement of Hedged Items in Fair Value Hedging Relationships
    • Measuring ad Reporting Ineffectiveness in Cash Flow Hedging Relationships
    • Disclosures
    • Effective Date and Transition
    • International Accounting Comparison
    • Alternative Views
  • Proposed SFAS – Accounting for Transfers of Financial Assets
    • Introduction
    • Objective
  • Proposed FAS – Amendments to FASB ASC 810, Consolidation [FIN No. 46(R)]
    • Reasons for Issuance
  • Questions
• Chapter 5 - FASB Projects
  • Learning Objectives
  • Introduction
  • Pre-Chapter Quiz
  • Major Project – Conceptual Framework
    • Introduction
    • Summary
  • Preliminary Views – Conceptual Framework for Financial Reporting: The Reporting Entity
    • Summary
  • Convergence Project – Financial Statement Presentation
    • Objective
    • Phase A
    • Phase B
    • Phase C
    • Immediate Plans
  • Discussion Paper – Preliminary Views on Revenue Recognition in Contracts with Customers (December 19, 2008)
    • Introduction
    • Scope
    • Recognition
    • Measurement
    • Potential Effects on Present Practice
    • Next Steps
  • Preliminary Views – Financial Instruments with Characteristics of Equity
    • Background
    • The Basic Ownership Approach
    • The Ownership-Settlement Approach
    • The Reassessed Expected Outcomes (REO) Approach
    • The Board’s Conclusion
  • Classification Examples
  • Convergence Project – Accounting for Leases
    • Status
    • Summary of Decisions to Date
  • Financial Instruments – Improvements to Recognition and Measurement
    • Project Objective
    • Reducing Complexity Comment Letter Summary
    • Exposure Draft, Accounting for Hedging Activities
  • Insurance Contracts
    • Decisions Reached to Date (as of February 25, 2009)
    • Next Steps
  • FASB Project – Emissions Allowances
    • Background
    • Next Steps
  • FASB Project – Postretirement Benefit Obligations including Pensions (Phase 2)
    • Phase 1
    • Phase 2
  • Invitation to Comment – Selected Issues Related to Assets and Liabilities with Uncertainties
    • Introduction
    • Probability and Contingencies
    • Contingent Assets
    • Contingent Liabilities
    • Probability Recognition Criterion
    • Measurement
  • FASB Project – FIN 48 Applicability to Private Entities
  • FASB Project – Technical Corrections to FASB Statements and Other U.S. GAAP Literature
  • FASB Project – Recoveries of Other-Than-Temporary Impairments (Reversals)
    • Summary
  • FASB Project – Financial Instruments: Derecognition
    • Summary
  • FASB Project – SEC Oil and Gas Disclosure
    • Summary
  • International Convergence Project – Earnings per Share
  • Income Tax Convergence Project
    • Objective
    • Topics Included
    • Next Steps
  • Valuation Resource Group
  • Questions
• Chapter 6 - AcSEC Update
  • Learning Objectives
  • Introduction
  • Pre-Chapter Quiz
  • Technical Practice Aids
  • Audit and Accounting Guides
    • Recently Issued
    • Exposure Draft
    • Projects
  • AICPA Technical Practice Aids
    • TIS Section 1900.01, Interim Financial Information – Condensed Interim Financial Reporting by Nonissuers (Issued January 2009)
    • TIS Section 1100.15, Statement of Financial Position – Liquidity Restrictions (Issued October 2008)
    • Investment Companies-Related TPAs
    • Other TPAs
  • Questions
• Chapter 7 - U.S. GAAP and IFRS Convergence
  • Learning Objectives
  • Introduction
  • The International Accounting Standards
    • The Standards Advisory Council
    • International Accounting Standards Board
    • IASB Standards
    • International Financial Reporting Interpretations Committee
    • Memorandum of Understanding
    • IASB Work Plan – Projected Timetable as of January 2009
    • IASB Projects
  • SEC’s Major Convergence Related Activities
    • Acceptance of IFRS Financial Statements
    • FASB/FAF Response to the SEC’s Proposed Rule
    • SEC’s Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers
    • Recent Changes in the IASC Foundation and IASB to Enhance Public Accountability
    • New SEC Chairperson
  • Questions
• Chapter 8 - Latest Developments
• Value Aid AICPA’s Audit Risk Alert

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Chapter 1

Business Combinations and Noncontrolling Interests

Learning Objectives

After studying this chapter, you should be able to

• Identify a business combination.
• Understand the acquisition method of accounting for a business combination.
• Measure the noncontrolling interest in a partially owned subsidiary at the acquisition date of the subsidiary.
• Classify on a consolidated balance sheet and income statement the noncontrolling interest in equity and the noncontrolling interest in net income.

Introduction The issuance of Statement of Financial Accounting Standards (SFAS) No. 141(revised 2007), Business Combinations, SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51, and International Financial Reporting Standard 3, Business Combinations (as revised in 2007), completed a major joint convergence project between the FASB and the International Accounting Standards Board (IASB). The Boards, in large part, achieved their objective to converge U.S. GAAP and international reporting standards in the area of business combinations.

The FASB’s previous business combinations standard, SFAS No. 141, Business Combinations, required the purchase method of accounting for business combinations. That method measured the acquirer’s share of the acquiree’s net assets at fair value on the acquisition date. SFAS No. 141(R) recognizes the acquiree’s net assets at fair value and the noncontrolling interest, if any, at fair value. That is a significant difference between SFAS No. 141 and SFAS No. 141(R). Other significant differences between the standards include the accounting for a bargain purchase, assets and liabilities arising from contingencies, as well as others.

SFAS No. 160 addresses several issues related to the measurement and recognition of the noncontrolling interest (previously, usually called the minority interest).

Pre-Chapter Quiz

1. A business combination is a transaction or event in which an acquirer obtains control of one or more businesses.
a. True.
b. False.

2. An acquirer must be identified in all business combinations, even if the entities that are combining are mutual entities.
a. True.
b. False.

3. As a general rule, the assets acquired, liabilities assumed, and any noncontrolling interest in a business combination should be measured at fair value at the date of acquisition.
a. True.
b. False.

4. In applying the acquisition method of SFAS No. 141(R), goodwill, if it exists, is allocated to the noncontrolling interest.
a. True.
b. False.

5. In applying the acquisition method of SFAS No. 141(R), a bargain purchase results in the reduction of the values assigned to the acquiree’s long-term assets excluding investments in securities.
a. True.
b. False.

6. On a consolidated income statement, the noncontrolling interest’s share of net income should be subtracted in the determination of consolidated net income.
a. True.
b. False.

7. On a consolidated balance sheet, the noncontrolling interest’s share of a subsidiary’s equity can be classified as a liability or as equity.
a. True.
b. False.

SFAS No. 141(R) – Business Combinations (Issued December 2007)

Introduction
SFAS No. 141(R) modifies SFAS No. 141’s purchase method of accounting for business combinations and labels the resulting approach the acquisition method. SFAS No. 141’s purchase method essentially accounted for the parent’s share of an acquiree’s assets and liabilities at fair value. One of the significant changes required by SFAS No. 141(R) is to account for the total of the acquiree’s assets and liabilities at fair value. Other changes are described below.

SFAS No. 141(R) is the result of a major joint project of the FASB and the IASB. Although convergence between SFAS No. 141(R) and the IASB’s IFRS 3 was substantially achieved, certain differences between the two standards remain.

Scope SFAS No. 141(R) applies to all business combinations as that term is defined in the standard. It does not apply to the following transactions:¹

• The formation of a joint venture.
• The acquisition of an asset or a group of assets that does not constitute a business.
• A combination between entities or businesses under common control.
• A combination between non-for-profit organization.

Key Terms

SFAS No. 141(R) defines the following key terms:²

Acquiree – The business or businesses that the acquirer obtains control of in a business combination.

Acquirer – The entity that obtains control of the acquiree. However, in a business combination in which a variable interest entity is acquired, the primary beneficiary of that entity is always the acquirer.

Acquisition date – The date on which the acquirer obtains control of the acquiree.

Business – An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants.

Business combination – A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as “true mergers” or “mergers of equals” also are business combinations as that term is used in SFAS No. 141(R).

Contingent consideration – Usually an obligation of the acquirer to transfer additional assets or equity interests to the former owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met. However, contingent consideration also may give the acquirer the right to the return of previously transferred consideration if specified conditions are met.

Control – Has the meaning of controlling financial interest in paragraph 2 of ARB No. 51, Consolidated Financial Statements, as amended.

Equity interests – A term used broadly to mean ownership interests of investor-owned entities and owner, member, or participant interests of mutual entities.

Fair value – The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Goodwill – An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.

An asset is identifiable if it either
– Is separable, that is, capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability, regardless of whether the entity intends to do so; or
– Arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

Intangible asset – An asset (not including a financial asset) that lacks physical substance.

As used in SFAS No. 141(R), the term intangible asset excludes goodwill.

Mutual entity – An entity other than an investor-owner entity that provides dividends, lower costs, or other economic benefits directly to its owners, members, or participants.

¹ SFAS No. 141(R), pages 1 and 2.
² SFAS No. 141(R), pages 2 and 3.

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