M&A rule changes to enlighten investors
The investors' struggle to judge the value of transactions may soon be over
Global standard setters believe they have taken a major step in giving
investors a better impression of the value of business deals after tweaking M
&A accounting rules.
The IASB and FASB moved to create a level playing field on business
combinations last week because investors were struggling to make meaningful
comparisons on the worth of transactions dealt with under differing treatments.
The main alignments centred on simplifying the measurement of goodwill and
allowing US GAAP-compliant companies to treat non-controlling interests as
equity.
Non-controlling interests come about when a business holds a minority stake
in the assets of a merged company after it combines with another based in an
overseas jurisdiction to create a dual-headed company. BHP Billiton operates
under a dual-headed structure.
Under the old rules, assets were only treated as equity under IFRS, but now
companies using US GAAP will be allowed to account for them in the same way.
The IASB said that there were more than 13,000 M&A transactions worldwide
in 2006. On average, between 75% and 80% of these deals involved public
companies, with the rest by private equity.
Just under half, with a combined value of $1.49 trillion (£0.75 trillion),
were completed by companies applying US GAAP. Transatlantic differences make it
difficult for investors and their advisers to work out how the activities of the
acquirer and its target would combine.
The IASB added there was still work to be done on resolving differences
between IFRS 3 and SFAS 141. ‘We have designed the revised IFRS 3 with the
intention that any future work on removing those differences will not cause us
to have to make major revisions to IFRS 3,’ the IASB said.