Summary of Statement No. 147
Acquisitions of Certain Financial Institutions—an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9 (Issued 10/02)
FASB Statement No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method, provided interpretive guidance on the application of the purchase method to acquisitions of financial institutions. Except for transactions between two or more mutual enterprises, this Statement removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Thus, the requirement in paragraph 5 of Statement 72 to recognize (and subsequently amortize) any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset no longer applies to acquisitions within the scope of this Statement. In addition, this Statement amends FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for other long-lived assets that are held and used.
Scope of This Statement
The provisions of this Statement that relate to the application of the purchase method of accounting apply to all acquisitions of financial institutions, except transactions between two or more mutual enterprises. The provisions of this Statement that relate to the application of Statement 144 apply to certain long-term customer-relationship intangible assets recognized in an acquisition of a financial institution, including those acquired in transactions between mutual enterprises.
Reasons for Issuing This Statement
Following the issuance of Statements 141 and 142, constituents asked the Board to reconsider the need for the guidance in Statement 72 and Interpretation 9; in particular, the special accounting for the unidentifiable intangible asset recognized under paragraph 5 of Statement 72. In developing this Statement, the Board concluded that the guidance in Statement 72 and Interpretation 9 is no longer necessary because:
- For a transaction that is a business combination, the unidentifiable intangible asset that is required to be recognized under paragraph 5 of Statement 72 represents goodwill that should be accounted for under Statement 142.
- Statement 141 provides sufficient guidance for assigning amounts to assets acquired and liabilities assumed; therefore, the specialized industry guidance in Interpretation 9 and paragraph 4 of Statement 72 is no longer necessary.
In addition, constituents asked the Board to clarify whether the acquisition of a less-than-whole financial institution (often referred to as a branch acquisition) should be accounted for as a business combination or in some other manner. This Statement clarifies that a branch acquisition that meets the definition of a business should be accounted for as a business combination, otherwise the transaction should be accounted for as an acquisition of net assets that does not result in the recognition of goodwill.
How the Changes in This Statement Improve Financial Reporting
The industry-specific guidance in Statement 72 will no longer apply to transactions in the scope of this Statement. Therefore, comparability of financial reporting will improve because Statement 141 will be used to account for financial institution acquisitions except transactions between mutual enterprises.
The Effective Date of This Statement
Paragraph 5 of this Statement, which relates to the application of the purchase method of accounting, is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions in paragraph 6 related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on October 1, 2002. Transition provisions for previously recognized unidentifiable intangible assets in paragraphs 8-14 are effective on October 1, 2002, with earlier application permitted.