Answer To: You will continue your work with Roberts Corporation and William Company.The FASB issued two new...
Prince answered on Feb 10 2023
Impact Analysis and Critique of SFAS 141R and SFAS 160 on the Roberts and William Business Combination
Student Name
10th Feb 2023
Introduction
The December 2007 FASB pronouncements related to Accounting for Business Combinations have substantially changed the accounting guidance related to business combinations, which affects the consolidation process for Roberts and William. Specifically, the two new pronouncements are SFAS 141R and SFAS 160, which both supersede previously existing standards. In this report, the impact these FASB pronouncements will have on the consolidation process for Roberts and William will be assessed and a analysis of how and why these modifications will enhance financial reporting will be covered.
Discussion
The December 2007 FASB pronouncements related to Accounting for Business Combinations have created substantial changes to financial reporting requirements that affect the consolidation process for Roberts and William. For acquisitions made after December 31, 2008, SFAS 141R mandates the utilization of the acquisition method, whereas SFAS 160 mandates the application of the economic organization approach to account for noncontrolling interests in subsidiaries that are not fully owned (Andrews, Riley, Todd, & Volkan, 2009). Upon the consolidation of Roberts and William, the key changes to the process provided by these new pronouncements are that there must be a standing calculation of the amount of noncontrolling interest and that there can be no amortization of goodwill. Additionally, the cost of the combinations must be recorded using the fair value of the assets acquired in the transaction rather than the historical cost of the acquired entity. The major benefit of these new pronouncements is that they provide greater clarity, transparency, and accuracy to the financial statements of companies that are involved in business combinations, which in turn provides more useful and reliable information for investors and creditors.
· SFAS 141R
Office of the Chief Accountant of the U.S. Securities and Exchange Commission (SEC), Christopher B. Cox, noted that SFAS 141R, which supersedes SFAS 141 and requires the use of the Acquisition Method for new acquisitions in reporting periods beginning December 31, 2008, is “a major step forward in accounting for business combinations.” (Cox, 2007). Under the Acquisition Method, the cost of the combination must be recorded using the fair value of the assets acquired in the transaction (SFAS 141R, 2007). Furthermore, the application of SFAS 141R when consolidating Roberts and William will limit the accountant’s ability to amortize the value of goodwill. This limitation is beneficial to investors, allowing them to assess the value of the company without any financial bias that could arise from the amortization of goodwill.
In terms of consolidation, prior to the issuance of SFAS 141R, the cost of the business combination was determined by the historical cost approach. This required accountants to calculate the cost of the combination by allocating the fair value of the consideration transferred, any liabilities assumed, and the...