FASB Marks Convergence Milestone with Issuance of Statements on Business Combinations and Noncontrolling Interests

The Financial Accounting Standards Board (FASB) in December 2007 issued FASB Statements No. 141, Business Combinations (Revised 2007), and No. 160, Noncontrolling Interests in Consolidated Financial Statements. Effective for fiscal years beginning after December 15, 2008, the standards will improve, simplify and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements.
“The new standards represent the completion of the FASB’s first major joint project with the International Accounting Standards Board, as well as a significant convergence milestone,” states FASB member G. Michael Crooch. “These standards and the counterpart standards issued by the IASB will improve reporting while eliminating a source of some of the most significant and pervasive differences between international financial reporting standards and U.S. generally accepted accounting principles.” The IASB plans to issue its counterpart standards IFRS 3 (revised), Business Combinations, and IAS 27 (Revised), Consolidated and Separate Financial Statements, early in 2008.

SFAS 141(R) improves reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable and relevant information for investors and other users of financial statements. SFAS 141(R) also will reduce the complexity of existing GAAP.

SFAS 160 improves the relevance, comparability and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way — as equity in the consolidated financial statements. Moreover, SFAS 160 eliminates the diversity in accounting for transactions between an entity and noncontrolling interests that currently exists by requiring they be treated as equity transactions. 

The FASB and the IASB first initiated the joint project that resulted in the new standards because U.S. GAAP and IFRS differed widely in their approach to accounting for business combinations. The new standards issued by the boards will contain the same fundamental principles and the related application guidance is similar in most respects; remaining differences will be candidates for reconsideration in current or future convergence projects.

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