Fair Value and Business Combinations‪.‬

Executive Summary Merger and acquisition specialists are very concerned about the implications of Accounting Standards Codification (ASC) 805, Business Combinations, which took effect for business combinations in fiscal years after December 15, 2008. Specifically, there are two major concerns: first, the earnings volatility the business combination accounting procedures create, and second, obtaining timely and accurate fair value measurements for assets acquired and liabilities assumed in the business combination. Both concerns directly result from the enhanced use of a fair value model required by the acquisition method that is used in the cost accumulation model, once heralded by the demised purchase method treatment. The acquisition method model requires most acquisition-related transaction costs to be recognized directly in earnings. In addition, subsequent changes in fair value measurements of most assets acquired and liabilities assumed are included in earnings, which is a vast departure from the accumulated cost model to which merger and acquisition specialists were accustomed.