Under current practice, business combinations are accounted for under a cost-accumulation approach, which focuses on the costs paid to acquire the business.  The new standard uses a fair value approach based on marketplace information and exit prices to value assets and liabilities of the acquired business.  In addition, the new standard revises the guidance on accounting for contingencies, restructuring costs, and transaction costs among others.

The new method of recognition could lead to very different results in reporting business combinations:

• actual gain might be recorded on purchase
• subsequent adjustments due to changes in fair value flow through the income statement
• recognition of goodwill attributable to the noncontrolling interest
• retroactive recording of adjustments made during the measurement period to the transaction date

If you have questions on a transaction, let us know.  How will the new rules change the way you consider business combinations?  Give us your thoughts in a comment.