A guide to accounting for business combinations (fourth edition)

June 2020

Audit Business combinations Financial reporting

We developed and designed our guide, A guide to accounting for business combinations (fourth edition), to help 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 and illustrations. 

The list of topics explored in the guide spans the entire spectrum, from determining whether a business combination occurred to the accounting for certain acquired items on and after the acquisition date to calculating the amount of goodwill or gain on a bargain purchase that should be recognized to providing the necessary disclosures for a business combination. In addition, the guide provides detailed discussion and examples on topics closely related to business combinations, such as accounting for combinations or transfers between entities under common control, accounting for asset acquisitions, accounting for increases or decreases in the buyer’s ownership interest in the target after the business combination and applying pushdown accounting.

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. The publication date for this guide is June 30, 2020. For the FASB’s standard-setting activities since that date, refer to the FASB’s website.

For information about major developments since June 2020 on the topics covered in this guide, refer to the following white papers:

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