FASB's Simplification Initiative—Part II

• Author: Oscar J. Holzmann,Paul Munter
• DOI: http://doi.org/10.1002/jcaf.22148
• Date: 01 March 2016
• Published date: 01 March 2016

91

© 2016 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22148

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FASB

FASB’s Simplification Initiative—Part II

Oscar J. Holzmann and Paul Munter

As we described previously,1

the Financial Accounting

Standards Board’s (FASB’s)

simplification initiative is “a

tightly-focused initiative to

make narrow-scope simplifi-

cations and improvements to

accounting standards through

a series of short-term projects.”2

The projects included in the ini-

tiative are intended to improve

or maintain the usefulness of the

information reported to investors

while reducing cost and complex-

ity in financial reporting.

SIMPLIFYING THE ACCOUNTING

FOR MEASUREMENT PERIOD

ADJUSTMENTS—ASU 2015–16

Under current U.S. gen-

erally accepted accounting

principles (GAAP), there is a

measurement period after the

consummation of a business

combination. The measure-

ment period is a reasonable

time period after the acquisi-

tion date during which the

acquirer may adjust the pro-

visional amounts recognized

for a business combination

when information necessary to

enable an acquirer to complete

the acquisition accounting by

the end of the first reporting

period following the acquisi-

tion date is unavailable.3 The

measurement period cannot

continue for more than one

year from the acquisition

date. If an acquirer makes an

adjustment to the provisional

amounts in a subsequent

period, it was required to retro-

spectively adjust the historical

periods to reflect those periods

as they would have appeared if

the information had been avail-

able at the acquisition date.

This guidance was aligned with

the guidance in International

Financial Reporting Standards

(IFRS) since the business com-

binations project was a joint

project between the FASB

and International Accounting

Standards Board (IASB).4

However, for U.S. Securities

and Exchange Commis-

sion (SEC) registrants, this

retrospective adjustment

requirement can create chal-

lenges when an entity is doing

a public capital raising that

requires it to file a registration

statement with the SEC if it

does so after the measurement

period adjustment has been

reported (e.g., in a Form 10-Q

quarterly filing) but before its

next annual financial state-

ments are filed showing the

retrospective adjustments to

theprevious annual periods

(e.g., in the next Form 10-K). In

that situation, if the measure-

ment period adjustments are

significant enough, the entity

may be required to revise its

previous annual financial state-

ments (i .e.,the annual financial

statements for the period that

includes the acquisition date)

and file the revised financial

statements with the SEC before it

can complete its capital raising.

In an effort to both sim-

plify the reporting by entities

that have measurement period

adjustments and continue to

provide the same information

that financial statement users

previously received, the FASB

issued Accounting Standards

Update (ASU) 2015-16, which

requires measurement period

adjustments to be reflected

entirely in the current period.5

However, to provide capital

providers with the same infor-

mation they received previously,

acquirers are also required to

disclose what the effects would

have been on each historical

period (including interim peri-

ods) if the adjustments had been

reflected on a retrospective basis.

BALANCE SHEET

CLASSIFICATION OF DEBT

Under current U.S. GAAP,

debt is classified as noncurrent