The FASB said it would work to narrow differences between the accounting models used for acquisitions of assets and acquisitions of businesses – two economically similar areas in GAAP that could be better aligned.

Deliberations would not be constrained by existing models for either business combinations or acquisitions if other ways could provide more useful information for financial statement users, according to board discussions.

“For framing we can start with existing models,” FASB Chairman Richard Jones said. “But I think when it comes to narrowing practice we may find that we are more able to achieve our objective by looking beyond the current models particularly when it comes to day two accounting.”

Board members unanimously agreed the scope of the board’s work would address:

• The accounting for contingent consideration in acquisitions of businesses and assets;
• The accounting by a primary beneficiary of a variable interest entity (VIE) that is not a business for in-process research and development (IPR&D) and/or contingent consideration obligations recognized upon the initial consolidation of a VIE; and
• Transaction or acquisition costs for acquisitions of businesses and assets.

The board’s debate could prove tricky because there are subtle differences between acquisition of assets versus a business, board discussions indicated.

“I’ve been generally reluctant to wanting to create a third model, that is, we have a business combination model and an asset acquisition model for most types of things – sometimes multiple asset acquisition models. To create a new one and move everything to a new model creates even more change,” FASB Vice Chairman James Kroeker said. “But I don’t rule that out because if there is an area we say ‘neither really meets the cost benefit test while providing useful information’ and we define a third way that’s simply the breakthrough – I’m open to that. I haven’t seen it yet but I wouldn’t rule it out,” he said.

The board voted against addressing the accounting for IPR&D in the project, fearing the topic would create unintended issues and potentially complicate and slow down the other issues being addressed.

Board members also agreed that issues related to the reassessments of lease contracts in acquisitions of assets and recognition and measurement exceptions, should be addressed under the board’s post-implementation review (PIR) of the leases standard.

The discussions were to affirm the direction for “phase three” of the board’s work on definition of a business.

The project was started in 2013 to address whether transactions should be accounted for as acquisitions (or disposals) of assets or acquisitions (or disposals) of businesses. A year later, the project was split into three phases to:

1. Clarify the definition of a business;
2. Clarify the scope of Subtopic 610-20 Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets , and clarify the reference to items that are in substance nonfinancial assets and address the guidance on partial sales or transfers of assets within the scope of Subtopic 610-20 and the corresponding accounting for retained interests in those assets; and
3. Discuss whether there are differences in the acquisition and derecognition guidance for assets and businesses that could be aligned.

During September 2 discussions, some board members expressed concern that the board might end up changing the model for business combinations, which is a fair value model, and cautioned that would not be a favorable outcome.

“Are we aligning asset acquisition accounting with business [combination] accounting or are we actually changing the whole business [combination] model?” FASB member Gary Buesser said is a question that should be on the board’s radar during forthcoming debates. “I think we ought to think about that because once you’re on that path this is a much bigger project than simply narrowing differences.”