- Distinguishes between a merger and an acquisition
- Applies the carryover method when accounting for a merger
- Applies the acquisition method for acquisitions
- Determines required disclosures
SFAS No. 164 recognizes the unique features of nonprofit organizations, such as the lack of ownership interests. Nonprofit organizations' mergers and acquisitions, therefore, focus primarily on carrying out the mission, governance and programs of the organization rather than providing returns to shareholders. Many nonprofit organizations do not involve the transfer of consideration but are nonreciprocal transfers; an acquiree's assets are contributed to the acquirer and recorded as an inherent contribution.
This statement requires the "carryover method" for mergers of nonprofit organizations. This method is similar to the old pooling of interests method in ARB 51 and APB 16. The merged organizations form a new entity with a new governing body. An acquisition is accounted for using the acquisition method.
Since information about goodwill may be of limited use to potential contributors, this statement requires an acquirer that expects the operations of the acquiree as part of the combined entity to be predominantly supported by contributions and returns on investments to recognize goodwill as a separate charge in its statement of activities.
Since there are these and other differences in accounting for mergers and acquisitions of nonprofit organizations, accountants and auditors should become familiar with the details of this pronouncement. A complete copy of SFAS No. 164 can be downloaded from www.fasb.org. The components of the statement will also be presented in FASB's Accounting Standards Codification.
Individuals subscribing to our update service on www.cpafirmsupport.com can access practical summaries of this and other proposed and new pronouncements on our Subscription Plan page.
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