NEWS RELEASE 10/09/06

FASB Proposals Improve M&A Accounting Guidance for Not-For-Profit-Organizations, Provide Decision Useful Information to Financial Statement Users

Norwalk, CT, October 9, 2006—The FASB today issued two Exposure Drafts intended to improve the accounting and disclosures for mergers and acquisitions (M&A) by not-for-profit organizations. The proposals reflect the Board's commitment to meet the reporting needs of the not-for-profit community and to ensure that financial statement users have access to decision-useful information.

Recent studies estimate that the total asset base of the United States' not-for-profit sector would make it the sixth largest economy in the world. Similar studies suggest that in the U.S. alone, the number of not-for-profit entities reporting financial results grew by 68% between 1993 and 2003, representing approximately 9% of the U.S. gross domestic product (GDP).

"The not-for-profit-sector makes up a sizable portion of reporting entities and GDP in the U.S. and the accounting for M&A activity can have a significant affect on the reported financial position of these organizations," said Michael Crooch, FASB member. "However, today, there is limited accounting guidance for not-for-profits relating to M&A activity. That limited guidance has often led to different financial statement results for similar economic transactions and events."

Today's Exposure Drafts address these concerns by proposing accounting standards that would produce financial information that is more consistent, comparable, and faithfully representative of the underlying economics of M&A events. Specifically, today's proposal, Not-for-Profit Organizations: Mergers and Acquisitions, would eliminate the use of the pooling-of-interests method of accounting by not-for-profit organizations, in which assets acquired and liabilities assumed are recorded at "carryover" amounts recorded on the books of acquired organizations. This proposal would instead require the application of the acquisition method to all mergers and acquisitions by a not-for-profit organization. In applying that method, the proposal generally would require that not-for-profit organizations:

  1. Recognize the identifiable assets acquired and liabilities assumed that compose the business or nonprofit activity acquired in a merger or acquisition;
  2. Measure those assets and liabilities at their fair values as of the acquisition date;
  3. Recognize either goodwill of the acquired business or nonprofit activity or the contribution inherent in the merger or acquisition as a residual based on the value of the identifiable assets acquired, liabilities assumed, and the consideration transferred (if any); and
  4. Disclose information to enable users of the financial statements to evaluate the nature and financial effects of the merger or acquisition.

Today's other Exposure Draft, Not-for-Profit Organizations: Goodwill and Other Intangible Assets Acquired in a Merger or Acquisition, proposes accounting guidance for those intangible assets after a merger or acquisition. The proposed guidance is consistent with the accounting for all other acquired intangible assets-whether purchased or donated, or whether acquired individually or as part of a group.

Under this proposal, not-for-profit organizations would be required to provide:

  1. Consistent and comparable information about identifiable intangible assets acquired by not-for-profit organizations in a merger or acquisition; and
  2. More faithfully representative and relevant information about events resulting in impairments of goodwill that a not-for-profit organization has acquired.

"Similar to our improvements to the accounting for business combinations in the for-profit sector, including those proposed in the June 2005 Exposure Draft, today's proposals will provide financial statement users with more consistent and comparable information that more reliably portrays the underlying economics of M&A transactions by not-for-profit organizations," said Alicia Posta, the FASB staffer managing the not-for-profit mergers and acquisitions project.

Copies of each of today's proposals may be downloaded from the FASB's website at www.fasb.org. The Financial Accounting Standards Board invites public comment on this and all Exposure Drafts. The comment deadline for today's Exposure Drafts is January 29, 2007.


About the Financial Accounting Standards Board

Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at www.fasb.org.