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January 2009 » Risks in Applying the New Business...
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Matthew Crane, CPA/ABV, and Robert A. Dyson, CPA
In December 2007, the FASB significantly changed the accounting for business combinations by issuing a revised statement, SFAS 141(R), Business Combinations. SFAS 141(R) applies a fair value model, where an acquirer measures identifiable assets acquired, liabilities assumed and any noncontrolling interest at fair value as of the acquisition date. The fair value model creates new risks in accounting for intangible assets. The authors believe that the use of various valuation methodologies, which, by definition, are subjective, expose an acquiring entity to earnings management risks. This article provides recommendations to manage these risks. Exhibit 1 is a glossary of common terms used in business combinations.
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