a live 110-minute audio conference with interactive...

CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS.

If no column is present: click Bookmarks or Pages on the left side of the window.

If no icons are present: Click View, select Navigational Panels, and chose either Bookmarks or Pages.

If you need assistance or to register for the audio portion, please call Strafford customer service at 800-926-7926 ext. 10

FASB Statement 164: Accounting for Non-Profit Mergers and Acquisitions

Preparing for New Standards on Combinations, Accounting Methods and Disclosures

presents

Today's panel features:Russell Coleman, Partner, Cherry Bekaert & Holland, Charlotte, N.C.

Colette Kamps, Senior Manager, Henry & Horne, Scottsdale, Ariz.Jay Meglich, Shareholder, Schneider Downs, Columbus, Ohio

Wednesday, September 16, 2009

The conference begins at:1 pm Eastern12 pm Central

11 am Mountain10 am Pacific

The audio portion of this conference will be accessible by telephone only. Please refer to the dial in instructions emailed to registrants to access the audio portion of the conference.

A Live 110-Minute Audio Conference with Interactive Q&A

1


Teleconference

Sept. 16, 2009

History of Prior Guidance; Practical Impacts from FAS 164

Russell ColemanCherry Bekaert & Holland

[email protected]

2

Introduction - Moving Away From Pooling Of Interests

• FASB instituted a project to revise accounting for business combinations in 1996

• APB Opinion 16 provided two methods:– Pooling of interests– Purchase

• The methods produce significantly different results• FASB believes that the accounting for a transaction

should produce similar results, unless there are differences in the transaction

• FASB Statement 141, replaced by 141R, eliminated pooling of interests

3

Introduction - Moving Away From Pooling Of Interests (Cont.)

• FASB Statement 141R specifically excluded the not-for-profit sector from its scope

• There are significant differences between combinations of for-profit and not-for-profit entities– Combinations of for-profit entities always have a profit

motive for ownership– Combinations of not-for-profit entities generally do not

involve ownership interests– Many combinations of not-for-profit entities do not

involve consideration• FASB, after a lengthy period of discussion, decided two

methods of accounting are appropriate

4

Practical Considerations And Applications

• The current economic climate favors more activity – The current economic and financial conditions have

affected smaller not-for-profit organizations– Combinations of smaller organizations with similar

missions may better serve the community• Large community organizations, particularly united

fundraising and community foundations, may prompt more combinations– Local United Way and community foundations

generally support many organizations– Consolidate grant-making efforts

5

Practical Considerations And Applications (Cont.)

• Determination of when a combination is a merger method– Ceding of control to a new entity: Is it really a new

entity?– Combination of organizations with similar missions– Transfer of consideration

• Issues related to applying carryover method vs. fresh start method– The elections between alternative accounting

methods for new entities are not available– There may be differences among the choices made

by the merging entities

6

Practical Considerations And Applications (Cont.)

• Issues related to applying carryover method vs. fresh start method (Cont.)– Historical cost bases of existing assets may no longer represent

the value to the organization• Determination of when a combination is an acquisition

– When is control not ceded to a new entity?• Who controlled the terms of combination?• Who controls new organization?

• Issues related to: – Intangible assets excepted from the recognition principle

• Donor relationships• Collections

– Goodwill

1


Teleconference

Sept. 16, 2009FAS 164 Background; Drill-Down on Carryover

Method

Colette KampsHenry & Horne [email protected]

2

Introduction To FAS 164• Goal of FAS 164

• Consolidation vs. combination– What is a combination of non-profit entities?– What is not a combination?

• How is a non-profit merger/acquisition different from a for-profit merger/acquisition?

• Definitions of “merger” and “acquisition” as applied to non-profits:– Merger = A combination in which the governing bodies of two or

more not-for-profit entities cede control of those entities to create a new not-for-profit entity

– Acquisition = A combination in which a not-for-profit acquirer obtains control of one or more non-profit businesses

3

Introduction To FAS 164 (Cont.)

• Non-profit merger – Use the carryover method

• Non-profit acquisition – Use the acquisition method

• Effective date

• Other standards that will now be effective for non-profits– FASB Statement 142 (goodwill)– FASB Statement 160 (non-controlling interests)– FASB Statement 141 (business combinations)

4

Mergers: Carryover Method• How do you know it’s a merger?

• How do you know if control has been ceded? Considerations include:– The process leading to the combination– The participants to the combination– The combined entity

• Example of a merger

• When is the merger date/measurement date?

• Carryover method – How does this work?– Recording the transaction– Financial reporting period

5

Mergers: Carryover Method (Cont.)

• Disclosures– Name and description of each merging entity– The merger date– The primary reason for the merger– The amounts recognized for each major class of assets, liabilities and

net assets (for each merging entity)– The nature and amounts of any significant adjustments made to

conform the accounting policies of the merging entities– The nature and amounts of any significant eliminations of intra-entity

balances

6

Mergers: Carryover Method (Cont.)

• Disclosure example:

• NFP ABC was formed on June 15, 20X1, as the result of a merger of three local not-for-profit entities: NFP A, NFP B and NFP C. All three entities shared the common mission of supporting youth education. Through their merger, the entities seek to further their common mission by (a)substantially improving their after-school youth programs in the region and their capability to assist youth in need, and (b) achieving economies of scale and other synergies through integrating their services

7

Major Classes of AssetsJune 15, 20X1

$3,830,248$924,014$1,479,764$1,426,470Liab and Net Assets

2,184,128545,464681,744956,920Unrestricted N/A

550,130159,660282,000108,470Temp restricted N/A

1,095,990218,890516,020361,080Total Liabilities

967,260185,560451,900329,800Long term debt

$128,730$33,330$64,120$31,280Accounts payable

Liabilities and net assets

$3,830,248$924,014$1,479,764$1,426,470Total Assets

1,078,108420,004108,234549,870Investments

1,191,330158,750599,210433,370Property and equipment

108,91027,36051,02030,530Promises to give

$1,451.900$317,900$721,300$412,700Cash and equivalents

Assets

TOTALNPF-CNFB-BNFP A

STRICTLY PRIVATE AND CONFIDENTIAL

FASB Statement 164: Accounting for Non-Profit Mergers and Acquisitions Teleconference

Sept. 16, 2009Drill-Down on Acquisition Method

Jay R. Meglich

Schneider Downs

[email protected]


Acquisition Accounting In FAS 164

• An acquisition of a business or non-profit activity is accounted for using the acquisition method of accounting

• Acquisitions of assets not constituting a business or non-profit activity are accounted for as asset purchases

• Business – Integrated set of activities and assets managed to provide a return (for profit)

• Non-profit activity – Integrated set of activities and assets managed to provide benefits to fulfill purpose or mission


Acquisition Method Requirements

• Acquisition method in FAS 164 is the same method as outlined in FAS 141(R)

• Requirements:

– Identification of acquirer

– Determination of acquisition date

– Recognize and measure identifiable assets acquired, liabilities assumed, and non-controlling interest in the acquiree

3


Identification Of The Acquirer

• The entity that obtains control of the acquiree is determined as follows:

– Non-profit acquirer other than a healthcare entity• Follow SOP 94-3

– Appendix D in SOP 94-3 for decision tree

– Non-profit healthcare acquirer• Follow Chap. 11 of AICPA healthcare audit guide

• Similar requirements as SOP 94-3

4


Acquisition Date

• Identified by the acquirer

• Generally, date acquirer obtains control– Legal transfer of consideration (if any)– Acquires assets– Assumes liabilities

• Other acquisition date considerations– Written agreement transferring control before closing date

5


Recognition Requirements

• Recognize separately from goodwill, identifiable assets acquired, liabilities assumed, and any non-controlling interest

• Refer to FASB Concepts Statement No. 6 for definitions of assets and liabilities– Expected costs, not obligated, are not acquisition liabilities (program

termination, severance, relocation …)– Part of acquisition vs. separate transaction (see para. 68)– Identifiable assets (intangibles) may not be on Statement of Financial

Position of acquiree

6


Recognition Exceptions • Limited recognition exceptions provider for in FAS 164 as follows:

– No recognition as an identifiable intangible asset separate fromgoodwill for acquired donor relationships (See para. A72)

– Charge capitalized collections against the appropriate net asset as a decrease, if the acquirer has a policy of not capitalizing collections (FAS 116 para. 11)

– Follow FAS 116 for recognition criteria for conditional promises to give that the acquiree has received

The above items are unique to non-profit organizations and therefore are specifically addressed in FAS 164

7


Classification

• Consider other GAAP principles when classifying assets acquired,liabilities assumed – Investments – Trading or other than trading– Derivatives – Designation as a hedging instrument (FAS 133)

• Consider contractual terms– Leases – Operating or capital (FAS 13 and Interpretation 21)– Insurance contract or deposit contract (FAS 60)

8


Measurement

• Acquisition date fair value is used to measure identifiable assets acquired, liabilities assumed, and any non-controlling interest (FAS 141(R))

• Typically follow other applicable GAAP for subsequent measurement of assets acquired and liabilities assumed

9


Measurement Exceptions

• Reacquired rights (use of acquirer’s technology) are valued based on remaining contractual terms (no consideration given to potential contractual extensions)

• Long-lived assets that are held for sale (per FAS 144) are to be reported at fair value at acquisition date, less cost to sell

10


Contingencies

• Contingent assets and liabilities (FAS 5) are recognized at fair value if it can be determined in the measurement period

• If fair value cannot be determined, recognize only if existence is probable at acquisition date and can be reasonable estimated

• Follow other GAAP if criteria for recognition are met in a period subsequent to the acquisition date

11


Goodwill• Goodwill represents the excess of:

– (A) Consideration transferred at acquisition date fair value, plus fair value of any non-controlling interest in the acquiree, plus acquisition date fair value of previous equity interest in acquiree; over

– (B) Acquisition date net amounts of identifiable assets and liabilities assumed

Goodwill is not recognized if the acquiree, as part of the combined entity, is supported predominantly (meaning, significantly more than the total of all other sources of revenue) by contributions and investment returns

In situations where (B) exceeds (A), the excess is reported as separate credit on the statement of activities

12


Financial Statement Presentation• Statement of activities

• Report acquisition as an activity in the period it occurs

• Separate line in Statement of Activities for “negative goodwill” and where reporting of goodwill is precluded as previously discussed. Healthcare organizations will report the charge within or without the performance indicator, depending on the support principle or based on the presence of restrictions – Follow 116 for restricted net assets of the acquiree– Must report donor-imposed restrictions as restricted, even if restrictions

are met in same accounting period (cannot report as unrestricted if restriction is met in same accounting period)

13


Financial Statement Presentation (Cont.)

• Cash flow statement

– Entire amount of any cash flow is reported as an investing activity

– Non-cash contributions or other amounts received or transferred are to be disclosed

14


Disclosures• Required disclosures in the period an acquisition occurs:

– Name and description of the acquiree– Acquisition date– Percentage of ownership interests acquired, if applicable– Reason for the acquisition and description of how control was obtained– Qualitative description of factors that make up recognized goodwill or charge in

statement of activities– Total, and by major class, of fair values of consideration transferred (must state “none,”

if applicable) – Contingent consideration agreements– Certain loan and debt securities disclosures by class– Amounts recognized for each major class of assets acquired and liabilities assumed– Information surrounding contingent assets or liabilities recognized– Amount of goodwill deductible for tax purposes– Amount of collection items recognized in statement of activities

15


Disclosures (Cont.)• Required disclosures in the period an acquisition occurs

– Information regarding conditional promises to give acquired or assumed

– Description of transactions entered into that are separate from the acquisition transaction. Acquisitions resulting in the acquirer recognizing a contribution received must disclose a description of the factors

– Disclosures surrounding step acquisitions, if applicable– Public entities must disclose activity attributable to the acquiree since

the acquisition date, and include pro forma information including comparative information

Disclosures are required if acquisition occurs after year-end but before financial statements are issued

16

Background – FASB Statement 164 http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175818801681&blobheader=application%2Fpdf

a live 110-minute audio conference with interactive...

Documents