United States

New edition of our business combinations guide


We have published the third edition of our guide, A guide to accounting for business combinations, which we developed to assist middle-market companies in accounting for business combinations under Topic 805, Business Combinations, of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification. Applying the accounting model in Topic 805 is no small undertaking given some of the complexities embedded in that model (e.g., the accounting for contingent consideration requires initially measuring it at fair value, appropriately classifying it as either an asset, liability or equity and subsequently adjusting it to fair value if it is classified as an asset or liability). To help alleviate this complexity, our guide explains the accounting for a business combination in plain English and illustrates many aspects of this accounting with detailed examples.

The list of topics explored in the guide spans the entire spectrum of issues related to the accounting for a business combination — from identifying whether a business combination has occurred to determining the amount of goodwill to be recognized to accounting for certain acquired items after the acquisition date to applying pushdown accounting. In addition, the guide provides checklists designed to promote the efficient and effective financial reporting of a business combination. The application checklist and disclosure checklist are available as paperless forms, making them easy to use for documentation purposes.

The third edition of our guide is based on information existing at June 1, 2016. Updates to the guide have been made to reflect Accounting Standards Updates (ASUs) issued on the following topics:

  • Private-company accounting alternatives related to goodwill and recognizing intangible assets acquired in a business combination
  • Elimination of the definition of development stage entity and the related unique financial reporting requirements
  • Pushdown accounting guidance applicable to both public and private entities
  • How an entity should evaluate whether it controls a limited partnership
  • Simplification of the accounting for measurement-period adjustments

In addition, the third edition of the guide reflects current thinking on certain topics, such as the valuation of a noncontrolling interest and inventory.

Changes made by the FASB to existing guidance for which there are significantly deferred effective dates, as well as changes to existing guidance that are in the process of being made by the FASB, are highlighted in this edition of the guide. Additional information about these changes can be found in our summary, Business combinations: In motion, which will be updated as significant standard-setting activities occur (e.g., issuance of a proposed or final ASU).