There are two parts of this research project. Each part should be completed independently. However save the assignment in ONE file. Use a page break to separate the two parts.
Part I
a) Your employer (a private company) is concerned about the amount of goodwill reported on the company’s consolidated financial statement. Where in the Codification can your employer find guidance about measuring/reporting goodwill for a private? NOTE: You are not required to explain the guideline, only identify where the information may be found, example: ASC 954-320- 55
The codification can guide the employer of the private company for goodwill to be reported on the consolidated financial statement. More precisely, the guidance on the reporting and the measurement of the goodwill on the consolidated financial statement can be found in the topic number 350: 20-05-2 and its subtopic 958-805. As per this code, Intangibles-Goodwill and Other and its subtopic, guidance on the initial measurement and recognition of the goodwill that has been acquired over time by the company is detailed (FASB.org, 2016).
b) In section 810 of the Codification guidelines for Consolidations are discussed. Read the following 810-10-45-11. In your own words, explain what this means.
As per section 810 of the Codification, guidance for the consolidations is provided. The financial statements of the companies, more specifically the parent company, is required to be reported other than the consolidated financial statements. This practice is needed to adequately show the bondholders in addition to the preferred shareholders and the creditors of the main parent company. For reporting of the consolidated financial statements, the reported Financials for the parent company is reported in one column, whereas other columns are used precisely for its further subsidiaries. It is often considered to be an effective way of reporting of all subsidiaries and the parent company. The consolidated financial statements are on the other hand more of a general-purpose statement of financial reporting the parent company’s Financials who has one or more subsidiaries working under its umbrella. It shows that the financial statement of the parent company is a substitute which is invalid in the context of the consolidated financial statements.
c) An investor argues that a Bargain generated from an acquisition should be recognized in the same manner as goodwill. Using the Codification, how can you refute the statement? Support your response with a specific reference to the appropriate section of the Codification: Reference example: ASC 954-320-55
As per the Accounting Standard Codification 805 and its paragraph 36, the bargain purchase is the type of business combination in which the net amount of an identifiable asset and the liabilities is considered greater than the summation of the consideration that has been paid and also any other NCI and interest that has been previously incurred. In the event that the bargain purchase takes place, the individual or entity that is acquired in the bargaining will be recognized with excess, if any has been identified as a gain at the date of acquisition. On the contrary, the goodwill from any acquisition is identified as the remaining amount as under the Accounting standard 805 under paragraph 34. The goodwill is considered to be an asset which represents the expected economic benefits that arise from the assets which have been acquired from the business combination that has not fulfilled the requirement of identifying as separately.
d) A classmate argues that failing to culminate an acquisition that has already begun is considered a Reverse Acquisition. Do you agree that this is the appropriate interpretation of a Reverse Acquisition? Why or why not? Support your response/discussion with an appropriate reference from the Codification.
As per the Accounting standard 805-10-55-12 and its subtopic 805-40 the guidance on accounting for reverse acquisition has been provided in detail. The reverse acquisition is the situation which takes place when a business combination situation with one entity issuing security is designated as the acquirer for the purpose of accounting. This type of arrangement often takes place which enables the private companies to be attained through a small shell company which is held publicly, forming a combined entity which is publicly held.
Part II
In this section, the response should be a cohesive discussion, i.e. an essay. Use APA formatting, How has the globalization of the economy and/or accounting impacted mergers and acquisitions? How do differences in culture, social values, political systems, technology and economic systems impact mergers/acquisitions in this global environmental?
Mergers and Acquisition are the forms of the restructuring of the business in an external context. Two businesses come together to form one business entity after dissolving both. It is done to provide strength to weak companies or for the purpose of expansion or entrance into a new market. In acquisition, on the other hand, takeover of one business entity by another. In an acquisition, only one company, the acquired one, is dissolved. Unification of the accounting standards has been a demanding request with the rise of globalization among companies. Each country follows a certain set of standards for its accounting and reporting purpose. It differs from one another. This caused confusion for companies all around the world as a comparison cannot be made accurately. In mergers and acquisitions, the impact of globalization has been positive. With globalization, the need and implementation of a unified accounting standard setup enable companies to operate with less complexity. Most of the small companies around the world are merging, and the rise of globalization is made easy with the simplicity of the accounting standards all over the world (Chapman, Hopwood, & Shields, 2007).
The unification of accounting standards aids the acquisition as well as one company who has been acquired does not need to change its reporting standards to align with the new company. However, not all the countries have similar standards; the US has its own US GAAP principles. Any merger or acquisition of a company who is following IFRS and is now needed to align with GAAP as well shows that it needs to report as per both standards. Mergers and acquisitions are also considered as a choice of strategy for companies looking for competitive advantage (Faulkner, Teerikangas, & Joseph, 2012). With globalization, cultures come together and better understand each other’s differences. The difference in social, political, and cultural values of a country affects the merger and acquisition strategy as well. Companies going into another country with a different culture need to align their policies as per the cultural and social norms of the country as well, or the investment can go wasted. Some countries provide a liberal labor law, whereas others implement more lax laws. Some countries invite corporate sectors in the education sector; some inhibit it. Some implement ceiling on the capital acquisition in its industries, while others provide relaxation in taxes. Therefore, this shows that before the merger or acquisition of a company located in a different country, its political, technological, social, and cultural values and norms are to be considered as well.
References:
Chapman, C., Hopwood, A., & Shields, M. (2007). The Handbook of Management Accounting Research.
FASB.org. (2016, May 12). Proposed Accounting Standards Update. Retrieved from FASB.org: https://asc.fasb.org/imageRoot/91/82887091.pdf
Faulkner, D., Teerikangas, S., & Joseph, R. (2012). The Handbook of Mergers and Acquisitions.
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