From page 152 in the eText
In considering its proposed statement of financial accountingstandards on business combinations, the FASB received numerouscomment letters. Many of these letters addressed the FASB'sproposed adoption of the economic unit concept as a valuation basisfor less-than-100-percent acquisitions. A sampling of these lettersincludes the following observations:
Bob Laux, Microsoft: Microsoft agrees with theBoard that the principles underlying standards should strive toreflect the underlying economics of transactions and events.However, we do not believe the Board's conclusion that recognizingthe entire economic value of the acquiree, regardless of theownership interest in the acquiree at the acquisition date,reflects the underlying economics.
Patricia A. Little, Ford Motor Company: Weagree that recognizing 100 percent of the fair value of theacquiree is appropriate. We believe that this is crucial in erasinganomalies which were created when only the incremental ownershipacquired was fair valued and the minority interest was reflected atits carryover basis.
Sharilyn Gasaway, Alltel Corporation: One ofthe underlying principles ⦠is that the acquirer should measure andrecognize the fair value of the acquiree as a whole. If 100 percentof the ownership interests are acquired, measuring and recognizing100 percent of the fair value is both appropriate and informative.However, if less than 100 percent of the ownership interests areacquired, recognizing the fair value of 100 percent of the businessacquired is not representative of the value actually acquired. Inthe instance in which certain minority owners retain theirownership interest, recognizing the fair value of the minorityinterest does not provide sufficient benefit to financial statementusers to justify the additional cost incurred to calculate thatfair value.
PricewaterhouseCoopers: We agree that thenoncontrolling interest should be recorded at its fair value whenit is initially recorded in the consolidated financial statements.As such, when control is obtained in a single step, the acquirerwould record 100 percent of the fair value of the assets acquired(including goodwill) and liabilities assumed.
Loretta Cangialosi, Pfizer: While we understandthe motivation of the FASB to account for all elements of theacquisition transaction at fair value, we are deeply concernedabout the practice issues that will result. The heavy reliance onexpected value techniques, use of the hypothetical marketparticipants, the lack of observable markets, and the obligation toaffix values to âpossibleâ and even âremoteâ scenarios, among otherrequirements, will all conspire to create a standard that willlikely prove to be nonoperational, unauditable, representationallyunfaithful, abuse-prone, costly, and of limited (and perhapsnegative) shareholder value.
Do you think the FASB made the correct decision in requiringconsolidated financial statements to recognize all subsidiary'sassets and liabilities at fair value regardless of the percentageownership acquired by the parent?
From page 152 in the eText
In considering its proposed statement of financial accountingstandards on business combinations, the FASB received numerouscomment letters. Many of these letters addressed the FASB'sproposed adoption of the economic unit concept as a valuation basisfor less-than-100-percent acquisitions. A sampling of these lettersincludes the following observations:
Bob Laux, Microsoft: Microsoft agrees with theBoard that the principles underlying standards should strive toreflect the underlying economics of transactions and events.However, we do not believe the Board's conclusion that recognizingthe entire economic value of the acquiree, regardless of theownership interest in the acquiree at the acquisition date,reflects the underlying economics.
Patricia A. Little, Ford Motor Company: Weagree that recognizing 100 percent of the fair value of theacquiree is appropriate. We believe that this is crucial in erasinganomalies which were created when only the incremental ownershipacquired was fair valued and the minority interest was reflected atits carryover basis.
Sharilyn Gasaway, Alltel Corporation: One ofthe underlying principles ⦠is that the acquirer should measure andrecognize the fair value of the acquiree as a whole. If 100 percentof the ownership interests are acquired, measuring and recognizing100 percent of the fair value is both appropriate and informative.However, if less than 100 percent of the ownership interests areacquired, recognizing the fair value of 100 percent of the businessacquired is not representative of the value actually acquired. Inthe instance in which certain minority owners retain theirownership interest, recognizing the fair value of the minorityinterest does not provide sufficient benefit to financial statementusers to justify the additional cost incurred to calculate thatfair value.
PricewaterhouseCoopers: We agree that thenoncontrolling interest should be recorded at its fair value whenit is initially recorded in the consolidated financial statements.As such, when control is obtained in a single step, the acquirerwould record 100 percent of the fair value of the assets acquired(including goodwill) and liabilities assumed.
Loretta Cangialosi, Pfizer: While we understandthe motivation of the FASB to account for all elements of theacquisition transaction at fair value, we are deeply concernedabout the practice issues that will result. The heavy reliance onexpected value techniques, use of the hypothetical marketparticipants, the lack of observable markets, and the obligation toaffix values to âpossibleâ and even âremoteâ scenarios, among otherrequirements, will all conspire to create a standard that willlikely prove to be nonoperational, unauditable, representationallyunfaithful, abuse-prone, costly, and of limited (and perhapsnegative) shareholder value.
Do you think the FASB made the correct decision in requiringconsolidated financial statements to recognize all subsidiary'sassets and liabilities at fair value regardless of the percentageownership acquired by the parent?
