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Accounting Update: A Review of Recent Activities (2008-2009 Edition)

Author/Moderator: Ronald E. Carlson, Ph.D., CPA
Publisher: AICPA
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Description

This course keeps you current and shows you how to apply the most recent financial accounting and reporting standards.

Objectives: 

Apply recently issued FASB Statements and Interpretations and AICPA Statements of Position and review exposure drafts and other projects

Prerequisite:  Experience in accounting.

Table of Contents

  • Chapter 1- Business Combinations and Noncontrolling Interests
    • Learning Objectives
    • Introduction
    • Pre-Chapter Quiz
    • SFAS No. 141(R) - Business Combinations (Issued December 2007)
      • Introduction
      • Scope
      • Key Terms
      • Identifying a Business Combination
      • The Acquisition Method
      • Disclosures
      • Effective Date and Transition
    • SFAS No. 160 - Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51 (Issued December 2007)
      • Scope
      • Amendments to ARB No. 51
      • Noncontrolling Interest in a Subsidiary
      • Deconsolidation of a Subsidiary
      • Disclosures
      • Effective Date and Transition
    • Questions
  • Chapter 2 - Other Recent FASB Standards
    • Learning Objectives
    • Introduction
    • Pre-Chapter Quiz
    • SFAS No. 161 - Disclosures about Derivative Instruments and Hedging Activities - an amendment of FAS 133 (Issued March 2008)
      • Introduction
      • Summary
      • Effective Date and Transition
    • SFAS No. 157 - Fair Value Measurements
      • Introduction
      • Scope
      • Measurement
      • Valuation Techniques
      • Fair Value Hierarchy
      • Disclosures
      • Effective Date and Transition
    • FSPs Related to SFAS No. 157
      • FSP FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements that Address Leasing Transactions
      • FSP FAS 157-2, Effective Date of FASB Statement No. 157
      • FSP FAS 157-c, Measuring Liabilities under SFAS No. 157
    • SFAS No. 159 - The Fair Value Option for Financial Assets and Financial Liabilities
      • Introduction
      • The Fair Value Option
      • Key Terms
      • Applying the Fair Value Option
      • Presentation of Items Measured at Fair Value under SFAS No. 159
      • Disclosures Applicable to SFAS No. 155 and SFAS No. 159
      • Application to Not-for-Profit Organizations
      • Effective Date
      • Early Adoption
    • SFAS No. 158 - Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)
      • Introduction
      • Changes Made by SFAS No. 158
      • Reporting by a Business Entity
      • Reporting by a Not-for-Profit Organization
      • Effective Dates
      • Transition
    • FSP Related to SFAS No. 158
      • FSP FAS No. 158-1, Conforming Amendments to the Illustrations in FASB Statements No. 87, No. 88, and No. 106 and to Related Staff Implementation Guides
    • FIN No. 48 - Accounting for Uncertainty in Income Taxes - an interpretation of SFAS No. 109
      • Introduction
      • Interpretation
      • Effective Date and Transition
    • FSPs Related to FIN No. 48
      • FSP FIN 48-1, Definition of "Settlement" in FASB Interpretation No. 48
      • FSP FIN 48-2, Effective Date of FASB Interpretation 48 for Certain Nonpublic Enterprises (Date Posted: February 1, 2008)
    • Questions
  • Chapter 3 - FSPs, Derivative and EITF Issues
    • Learning Objectives
    • Introduction
    • Pre-Chapter Quiz
    • FASB Staff Positions
      • Introduction
      • Final FSPs
      • Proposed FSPs
    • FAS 133 (Derivatives) Implementation Issues
      • Issue E23 - Hedging - General: Issues Involving the Application of the Shortcut Method under Paragraph 68 (Posted January 10, 2008)
      • Issue E15 - Hedging - General: Continuing the Shortcut Method after a Purchase Business Combination (Revision Posted December 6, 2007)
      • Issue B40 - Embedded Derivatives: Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets (Posted January 17, 2007)
      • Issue G26 - Cash Flow Hedges: Hedging Interest Cash Flows on Variable-Rate Assets and Liabilities that Are Not Based on a Benchmark Interest Rate (Posted January 8, 2007)
      • Issue G19 - Cash Flow Hedges: Hedging Interest Rate Risk for the Forecasted Issuances of Fixed-Rate Debt Arising from a Rollover Strategy (Revision Posted January 8, 2007)
      • Proposed Statement 133 Implementation Issues
    • Recent EITF Issues
      • 07-03 - Accounting for Nonrefundable Advance Payments for Goods and Services to Be Used in Future Research and Development Activities (June, 2007)
      • 06-11 - Accounting for Income Tax Benefits of Dividends on Share-Based Awards (Draft for Public Comment)
      • 06-10 - Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Agreements (Draft for Public Comment)
      • 06-8 - Applicability of the Assessment of a Buyer's Continuing Investment under FASB Statement 66, Accounting for Sales of Real Estate, for Sales of Condominiums
      • 06-4 - Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (June 15, 2006)
      • 06-1 - Accounting for Consideration Given by a Service Provider to Manufacturers or Resellers of Equipment Necessary for an End-Customer to Receive Service from the Service Provider (September 7, 2006)
    • Proposed EITF Consensuses
      • Introduction
      • 07-04 - Application of the Two-Class Method under FASB Statement 128, Earnings per Share, to Master Limited Partnerships
    • EITF Open Issues
    • EITF Topics
    • Questions
  • Chapter 4 - FASB Exposure Drafts
    • Learning Objectives
    • Introduction
    • Pre-Chapter Quiz
    • Proposed SFAS - Not-for-Profit Organizations: Mergers and Acquisitions
      • 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 an Amendment of SFAS No. 142
      • 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 Subsidiary Exists
      • Equity Method Goodwill
      • Financial Statement Presentation of Goodwill and Related Impairment Losses
      • Disclosures
      • Effective Date and Transition
      • Proposed SFAS - Earnings per Share - an amendment of SFAS No. 128
      • Introduction
      • Amendments to SFAS No. 128
      • Effective Date and Transition
    • Proposed SFAS - Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60
      • New Format for FASB Statements
      • Summary
    • Proposed SFAS - Accounting for Transfers of Financial Assets - an Amendment of FASB Statement No. 140
      • Introduction
      • Summary
    • Proposed SFAS - The Hierarchy of Generally Accepted Accounting Principles
      • Introduction
      • GAAP Hierarchy
      • Effective Date
    • Questions
  • Chapter 5 - FASB Projects
    • Learning Objectives
    • Introduction
    • Pre-Chapter Quiz
    • Major Project - Conceptual Framework
      • Introduction
      • Summary
    • International Convergence Project - Earnings per Share
    • Income Tax Convergence Project
      • Objective
      • Topics Included
      • Immediate Plans
    • Convergence Project - Financial Statement Presentation
      • Objective
      • Phase A
      • Phase B
      • Phase C
      • Immediate Plans
    • Convergence Project - Revenue Recognition
      • Introduction
      • Revenue Recognition
      • General Approach
      • Summary of Tentative Conclusions
    • 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
    • Research Project - Financial Instruments
    • Research Project - Accounting for Insurance Contracts
      • Invitation to Comment
    • Research Project - Consolidations: Policy and Procedures
    • FASB Project - Accounting for Certain Nonfinancial Liabilities
    • FASB Project - Accounting for Hedging Activities
    • FASB Project - Emission Allowances
      • Background
    • FASB Project - Fair Value Option (Phase 2)
    • FASB Project Insurance - Risk Transfer
    • Summary
    • FASB Project - Loan Loss Disclosures
      • Objective
      • Background
    • 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: Codification and Retrieval
      • Summary
    • Valuation Resource Group
    • Questions
  • Chapter 6 - AcSEC Update
    • Learning Objectives
    • Introduction
    • Technical Practice Aids
    • Pre-Chapter Quiz
    • SOP 07-01 - Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies
      • FSP SOP 07-1-1 - Effective Date of AICPA Statement of Position 07-1 (February 14, 2008)
    • AICPA Technical Practice Aids
      • Guidance on Applying FSP AAG INV-1 and SOP 94-4-1
      • Not-for-Profit Organizations Reporting Fundraising Expense
      • TPAs on SOP 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts
      • Other TPAs
    • Exposure Draft of Proposed Audit and Accounting Guide, Airlines
      • Introduction
      • What the Guide Does
    • Other Current AcSEC Projects
      • Introduction
      • Projects
    • Questions
  • Chapter 7 - U.S. GAAP and IFRS Convergence
    • Learning Objectives
    • Introduction
    • Pre-Chapter Quiz
    • The International Accounting Standards
      • The Standards Advisory Council
      • International Accounting Standards Board
      • IASB Standards
      • International Financial Reporting Interpretations Committee
      • Funding of the IASB
      • Memorandum of Understanding - Roadmap for Convergence
      • SEC's Major Convergence Related Activities
      • Proposed Changes to the Organization of the FASB and the IASCF
    • Questions
  • Chapter 8 - Ethics Focus: Accounting and Auditing
    • Ethics Overview
    • Recent Developments
    • Spotlight on Independence
    • Key Ethical Dilemmas
    • Addressing Ethical Dilemmas
    • Available Resources
  • Chapter 9 - Latest Developments

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Excerpts

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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    NASBA Field of Study: Accounting
    Level: Update
    Recommended CPE Credit: 12
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