GAAP Flash – ASC 805, IFRS 3, ASC 830 and ASC 450 – 01.20.16
gaap-flash-asc-805-ifrs-3-asc-830-and-asc-450-01-20-16

GAAP Flash – ASC 805, IFRS 3, ASC 830 and ASC 450 – 01.20.16

This week’s GAAP Flash includes articles about business combinations under ASC 805 or IFRS 3, the impact of volatile currency prices under ASC 830, and loss contingencies under ASC 450 to help increase business acumen of CPAs.

Ray-Ban Maker Luxottica to Merge With Lens Company Essilor, Creating $49 Billion Eyewear Giant (January 16, 2017) – Wall Street Journal (@WSJ)

Two European eyewear companies agreed to merge, creating a global giant that will control over 25% of the world’s market. The deal includes a stock swap with current Luxottica shareholders, exchanging each of their shares to receive 0.461 shares of Essilor stock.

How It’s Relevant: Where does accounting guidance for mergers exist? Check the business combinations topic, ASC 805 for U.S. GAAP or IFRS 3; you won’t find any reference to mergers in there, though.

In the accounting world, acquisitions are the only type of business combination that exists, which means that companies involved with these transactions must determine which company is the acquirer (the buyer) and which one is the acquiree (the target). In a stock swap deal like the one introduced here, it may be particularly challenging to make this distinction!

Pound Drops to 31-Year Low Against Dollar (January 16, 2017) – Wall Street Journal (@WSJ)

In the wake of serious uncertainty about the impact of Brexit, the British Pound continues to trade lower against the U.S. dollar and the Euro. The drop happened mainly due to the increasing likelihood of the UK pulling out of the EU’s single market in a clean break. After reaching a 31-year nadir, a speech by Prime Minister Theresa May caused Sterling to rise up to 2.5% against the Greenback, as she cited putting the deal to leave the EU to a parliamentary vote even though Britain would likely leave the tariff-free single market.

How It’s Relevant: It’s not necessarily a surprise that current events can greatly impact currency volatility. What is more remarkable is the speed at which currency rates fluctuate these! Multinational companies need to keep a pulse of these fluctuations and find ways to protect themselves from such violent changes. Also, it’s important to remember the impact that transaction and translation gains or losses can have on your income statements under ASC 830!

British American Tobacco Agrees to Pay $49 Billion to Take Full Control of Reynolds American (January 17, 2017) – Wall Street Journal (@WSJ)

The rich get richer again with Reynolds American agreeing to a new acquisition offer by British American Tobacco to purchase the additional 57.8% of Reynolds that it doesn’t already own. Full control by British American will create the largest listed tobacco company by revenue and market share.

How It’s Relevant: A business combination achieved in stages, otherwise known as a “step” acquisition, describes a situation when a buyer obtains control of a target in which it already held an equity interest before fully obtaining control. In these situations, the buying company, or the acquirer, will remeasure its previously held interest at fair value at the acquisition date and recognize any gain or loss when compared to the carrying value of its equity investment. Remember, any previously recognized changes in the value of this investment sitting in other comprehensive income will offset the gain or loss from measuring fair value at the acquisition date.

General Motors Charged With Accounting Control Failures (January 18, 2017) – U.S. Securities and Exchange Commission (@SEC_News)

The SEC announced a new $1 million settlement with General Motors due to accounting control failures. These deficiencies prevented GM from properly assessing, in a timely manner, the financial impact of a vehicle recall due to a faulty ignition switch.

How It’s Relevant: Operational issues can have financial reporting impacts! In this case, General Motors did not adequately assess whether it should disclose or accrue a loss contingency in its financial statements. During an 18-month period, GM did not evaluate the likelihood of the recall or the potential losses that would result from the recall of vehicles with faulty ignition switches.

Disclaimer
This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.

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