On the Implications of Fair Value Based Merger Accounting

Accounting for business combinations appeared formally for the first time in statute books in the United States in 1970 when Accounting Principles Board (APB) promulgated Opinion No. 16 (Business Combinations) and Opinion No. 17 (Intangible Assets). The US Financial Accounting Standards Board (FASB hereinafter) subsequently issued SFAS 141(R) and SFAS 160. This paper attempts to analyze merger accounting in the context of the aforesaid standards and related provisions as they stand en presnti underscoring the role therein of fair value accounting and measurements. Additionally, a critical evaluation of the pooling & purchase methods of merger accounting is presented in an effort to explain the relative aversion of accounting bodies to the pooling method. Contextual SFAS, IFRS and Indian standards on business combinations that mandate the use of the acquisition method are also elaborated.