The Future of Accounting for Business Combinations
This paper explores the properties of pooling of interests (merger) accounting and purchase (acquisition) accounting as currently practised. It also compares these methods with variants of them that involve a greater use of fair values, the extent of valuation on a fair value basis and the treatment of different accounting methods. In particular, a greater use of fair values would reduce significantly the difference between the purchase and pooling methods and might also improve the extent to which the financial accounts reflect the economic reality of the business combination. However, the most consistent method of accounting for business combination, which would provide comparability across the full range of types of combination, is "fresh start" accounting which incorporates the recognition of all goodwill (and previously unrecognised intangible assets) in the combined group.
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