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January 2011: Analysis: new Guidance on Pro Forma Requirements for Business Combinations

January 2011: Analysis: new Guidance on Pro Forma Requirements for Business Combinations

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Published by: SingerLewak on Apr 14, 2011
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AssurAnce & Advisory
.sgLak. | 877.754.4557
Public Company Financial Executive Brie 
AnALysis: new GuidAnce on Pro FormA requirementsFor Business comBinAtions
By Jim Pitrat, CPA, Practice Leader - Assurance & Advisory Practice
tuesdAy, JAnuAry 4, 2011executive summAry:
Accounting Standards Update (ASU) No. 2010-29 clarifes thatpro orma revenue and earnings or a business combinationoccurring in the current year should be presented as thoughthe business combination occurred as o the beginning o theyear or, i comparative statements are presented, as thoughthe business combination took place as o the beginning o the comparative year.Prior to the ASU, the FASB Accounting Standards Codifcation(ASC) Section 805-10-50 , Business Combinations—Overall—Disclosure, calls or public entities to present pro ormarevenue and earnings o the combined entity as ollows:
•
As i the date o acquisition was as o the beginning o the current year, and,
•
I comparative statements are presented, pro ormaamounts are required to be reported as i the acquisitiondate o a business combination occurring during thecurrent period had taken place as o the beginning o thecomparative prior year.Interpretation o the requirements was varied. Companieswould interpret the guidance in the ollowing ways:
•
When a business combination occurs during the currentperiod, pro orma revenue and earnings inormationshould be presented as though the acquisition took placeas o the beginning o the current year and as o thebeginning o the prior comparative year, or
•
Pro orma inormation was disclosed as i the businesscombination took place at the start o the priorcomparative year, with related acquisition adjustmentscarried through in the current year.The new ASU clarifes that pro orma inormation o thecombined entity should be presented as though the businesscombination had occurred only as o the beginning o thecomparable year;Additionally, the ASU requires certain additive supplementalpro orma inormation concerning non-recurring pro ormaadjustments.
Amendments:
The disclosures required o public entities are as ollows:I comparative fnancial statements are not presented, proorma revenue and earnings o the combined entity should bebased on the assumption that the business combination tookplace as o the beginning o the current year.
•
I comparative fnancial statements are presented:
•
Pro orma revenue and earnings o the combinedentity should be based on the assumption that thebusiness combination occurred as o the beginning o the comparative year, and
•
In the year ollowing the business combination,pro orma inormation should not be revised i comparative statements or the year in which theacquisition occurred are.
•
Disclosure o the nature and amounts o any materialnonrecurring adjustments directly attributable to thebusiness combination included in the pro orma revenueand earnings.Rules related to acquisitions by a not-or-proft entity, havealso been amended to require disclosure o the nature and

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