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:
â¢Bob Laux, Microsoft: Microsoft agrees with the Board that theprinciples underlying standards should strive to reflect theunderlying economics of transactions and events. However, we do notbelieve the Board's conclusion that recognizing the entire economicvalue of the acquiree, regardless of the ownership interest in theacquiree at the acquisition date, reflects the underlyingeconomics.
â¢Patricia A. Little, Ford Motor Company: We agree thatrecognizing 100 percent of the fair value of the acquiree isappropriate. We believe that this is crucial in erasing anomalieswhich were created when only the incremental ownership acquired wasfair valued and the minority interest was reflected at itscarryover basis.
â¢Sharilyn Gasaway, Alltel Corporation: One of the underlyingprinciples ⦠is that the acquirer should measure and recognize thefair value of the acquiree as a whole. If 100 percent of theownership interests are acquired, measuring and recognizing 100percent 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.
â¢PricewaterhouseCoopers: We agree that the noncontrollinginterest should be recorded at its fair value when it is initiallyrecorded in the consolidated financial statements. As such, whencontrol is obtained in a single step, the acquirer would record 100percent of the fair value of the assets acquired (includinggoodwill) and liabilities assumed.
â¢Loretta Cangialosi, Pfizer: While we understand the motivationof the FASB to account for all elements of the acquisitiontransaction at fair value, we are deeply concerned about thepractice issues that will result. The heavy reliance on expectedvalue techniques, use of the hypothetical market participants, thelack of observable markets, and the obligation to affix values toâpossibleâ and even âremoteâ scenarios, among other requirements,will all conspire to create a standard that will likely prove to benonoperational, unauditable, representationally unfaithful,abuse-prone, costly, and of limited (and perhaps negative)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?
