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SUMMARY AND HIGHLIGHTS
PROPOSED FASB STATEMENT OP FINANCIAL ACCOUNTING STANDARDS (SFAS), NOT-FOR-PROFIT ORGANIZATIONS: MERGERS AND ACQUISITIONS, WOULD REPLACE ACCOUNTING PRINCIPLES BOARD (APB) OPINION NO. 16 (AS IT STILL APPLIES TO NOT-FOR-PROFIT ORGANIZATIONS) AND ESTABLISH COMPREHENSIVE STANDARDS OF ACCOUNTING BY SUCH ORGANIZATIONS THAT MERGE WITH OR ACQUIRE ANOTHER ENTITY.
No. 2005-32
(October 2005)
SUBJECT: ACCOUNTING FOR MERGERS AND ACQUISITIONS BY NOT-FOR-PROFIT ORGANIZATIONS
PRONOUNCEMENT ANALYZED: Proposed FASB Statement of Financial Accounting Standards (SFAS), Not-for-Profit Organizations: Mergers and Acquisitions
EFFECTIVE DATE: See later discussion.
INTRODUCTION
Proposed FASB Statement of Financial Accounting Standards (SFAS), Not-for-Profit Organizations: Mergers and Acquisitions (Exposure Draft No. 1500-100), would establish standards on accounting and reporting by a not-for-profit organization that merges with or acquires another entity. Presently, not-for-profit organizations account for mergers and acquisitions in a manner similar to the pooling-of-interests method pursuant to Accounting Principles Board (APB) Opinion No. 16, Business Combinations, which, for business entities, was superseded by SFAS No. 141, of the same title. SFAS No. 141, however, explicitly does not apply to business combinations between not-for-profit organizations nor does it apply to the acquisition of a for-profit entity by a not-for-profit organization. Exposure Draft No. 1500-100 thus represents the Board's attempt to establish a comprehensive framework regarding the accounting for mergers and acquisitions involving not-for-profit entities.
PROPOSED STANDARDS
Following is a brief discussion of the main elements of Exposure Draft No. 1500-100.
* A merger or acquisition would be defined as an event resulting in initial recognition of another business or non-profit activity in the financial statements of a not-for-profit organization (i.e., any event that requires consolidation of a previously unconsolidated entity by initially recognizing its net assets). Note that the new standards would not apply to combinations between entities under common control.
* The acquisition method would have to be applied in accounting for a merger...