AICPA releases valuation guide for business combinations

The American Institute of CPAs has published a new guide with information on best practices for the accounting and valuation of business combinations such as mergers and acquisitions.

The AICPA's Accounting and Valuation Guide: Business Combinations is designed for valuation specialists, preparers of financial statements and independent auditors. It includes detailed advice on the best practices for accounting and valuations of business combinations in accordance with Financial Accounting Standards Board standards such as ASC 805 and 820. The guide provides advice on identifying business combination transactions and whether the acquired set meets the definition of a business or is a collection of assets.

Other topics include identifying the acquirer, measuring the consideration transferred, recognizing and measuring the identifiable assets acquired and liabilities assumed, and any noncontrolling interests in the acquiree, along with recognizing and measuring goodwill or a gain from a bargain purchase.

The guide also discusses other relevant valuation issues that have emerged over the years, offering guidance for the assessment of prospective financial information, discount rate, and transaction operating value of the acquiree, addressing valuation approaches and methods along with their application to a variety of assets acquired and liabilities assumed. It explains the valuation method selection process for acquired intangible assets and addresses why certain methods — especially the interaction between those methods and the inputs for them — are appropriate given their attributes.

The guide includes some illustrative examples demonstrating, for example, the internal rate of return analyses, the valuation method selection process, and the application of valuation methods most generally used in practice to value a specific asset or liability.