Understanding Mergers and Acquisitions for Non Profits (FAS 164)
Overview:
FASB recently issued Statement No. 164 in an effort to clarify M&A transactions among non-profits. According to the FASB, the statement aims to “improve the relevance, representational faithfulness and comparability of the information that a not-for-profit entity provides in its financial reports about a combination with other not-for-profit entities, businesses or nonprofit activities by establishing principles and requirements. The Statement provides guidance on how a not-for-profit entity: - Determine when a combination is a merger or an acquisition - Apply the carryover method in accounting for a merger - Apply the acquisition method in accounting for an acquisition, including identifying the acquirer between or among the combining entities - Determine the information to disclose to allow users of financial statements to evaluate the nature and financial effects of a combination Statement 164 takes effect for mergers whose initial reporting period is on or after Dec 15, 2009 and for acquisitions whose 1st annual reporting period begins on or after December 15, 2009. Early applications are not permitted. The only way to make clear accounting disclosures is to ensure that your financial statements conform to these new standards. A panel of distinguished experts and key regulators will help nonprofits understand FASB Statement No. 164. This LIVE Webcast produced by The Knowledge Group will teach you how to account for mergers and acquisitions as well as guide you through the necessary disclosures.
Agenda:
SEGMENT 1: Lee Klumpp, CPA, Senior Technical Manager, Institute for Nonprofit Excellence , BDO Seidman, LLP SFAS 164 – Mergers of nonprofits and goodwill: Not-for-Profit Entities: Mergers and Acquisitions – Including an amendment of FASB Statement No. 142 Accounting for combinations of not-for-profit organizations: - SFAS 164 distinguishes between a Merger and an Acquisition - Mergers accounted for on ‘carryover basis’ – similar to pooling accounting under APB 16 - Acquisitions accounted for on ‘acquisition basis’ – similar to SFAS 141(R) - Determining factor of a merger: ceding of control by the governing bodies of two (or more) organizations to a new organization; the governing board of the new entity must be newly formed, but establishing a new legal entity is not a requirement - Other factors such as relative size, relative dominance of the process and of the combined entity, and relative financial health, can be considered in judging whether control has been ceded, but are not themselves determinants of a merger vs. an acquisition - All other combinations are acquisitions Accounting for a merger: - Add together the historical financial data of the merging entities as of the merger date (not, as under APB 16, as of the beginning of the fiscal year in which the merger occurs) - Financial statements of the period of the merger include data only since the date of the merger (except that for a public company (FSP 126-1), pro forma disclosure is required as if the merger had occurred at the beginning of the fiscal year) - Conform accounting policies, except, because this is not a ‘fresh-start’, a merger is not an event that permits the election of accounting options that are restricted to the entity’s initial acquisition or recognition of an item (or the reversal of a previous election). Thus, for example, one merging entity’selection of the fair value option (SFAS No. 159), for a particular financial asset or liability permits neither the new entity’s election of the fair value option for other financial assets or liabilities nor reversal of a previous election of this option. - Eliminate effects of any intra-entity transactions - All reclassifications, adjustments, and other changes needed to effect a merger are rolled into opening balances - Since the successor organization after a merger is a new entity, there is no prior period statement of activity or cash flows (an ‘opening’ balance sheet may be presented if desired) Accounting for an acquisition: - Identifiable assets and liabilities (and any noncontrolling interest) of the acquired entity are brought in at their fair values at date of acquisition - Exceptions specific to nonprofits: Collections are accounted for in accordance with the policy of the acquirer; conditional pledges are not recorded; no value is attributed to donor relationships - Exception for leases: Leases are classified (operating vs. capital) according to their terms at lease inception, unless they have been modified - If the value of the acquired assets exceeds the sum of the acquired liabilities plus any consideration, the difference is recorded as an inherent contribution and reported as a separate credit in the statement of activities - If the sum of the liabilities plus consideration exceeds the assets, the difference is recorded as goodwill, except: - if the entity is predominantly supported by contributions and/or investment return, the goodwill is written off immediately as a separate charge in the statement of activities (‘predominantly supported by’ means that contributions and investment return are expected to be significantly more than the total of all other revenues) - Any noncontrolling interests are accounted for in accordance with SFAS 160 - Acquisition-related costs are period expenses, except for debt issuance costs SFAS 142 (Goodwill) is made fully effective for not-for-profit entities (goodwill is no longer amortized, rather it is tested for impairment) Various descriptive, quantitative, and qualitative (why the merger/acquisition occurred) disclosures are required. Effective date: - Combinations occurring in reporting periods beginning on or after 15 December 2009; - Early adoption prohibited SFAS 142 does not apply to: a. The formation of a joint venture b. The acquisition of assets that do not constitute either a business or a nonprofit activity c. A combination between entities under common control d. An event in which a not-for-profit entity obtains control of another entity but does not consolidate that entity, as permitted or required by AICPA SOP No. 94-3. SEGMENT 2: Mark L. Zyla CPA/ABV, CFA, ASA, Managing Director, Acuitas, Inc. ** Speaker Talking Points to be added soon.. ** SEGMENT 3: Jerald A. Jacobs, Partner, Pillsbury Winthrop Shaw Pittman LLP Focusing on the legal aspects of nonprofit mergers and consolidations, as distinguished from the accounting aspects, several things stand out. First and foremost is process. Mergers and consolidations are creatures of state nonprofit corporation law. Observing the requirements of that law — for deadlines, approvals, filings, and other processes — is one key to success. Conventional “acquisitions” rarely occur among nonprofit organizations because by definition none has “owners.” Instead when a small group joins a large one, or a weak one joins a strong one, the former usually dissolves and transfers assets to the latter. The main legal-related steps are: (1) a preliminary NDA; (2) legal and financial reciprocal due diligence reviews; (3) a comprehensive merger/consolidation agreement with key attachments; (4) reciprocal governing board approvals; (5) reciprocal membership approvals where organizations have voting members; and (6) closing. Three-to-six months for all steps is typical; but it’s been done as fast as one month or as slow as several years. Legal and financial due diligence reviews have some commonality but are usually quite different in scope and result. Most failed attempts fail over seemingly trivial issues; so “deal breakers” and “near deal breakers” should be exposed early and accommodated if possible. Failure to achieve approvals usually results from inadequate attempts; so “marketing” is a key factor. SEGMENT 4: Darren S. Cordier, CFA, President and CEO, FV Specialists, Inc. Fair Value Issues - Criteria/Definition - Assumptions - Hierarchy of support - Assets with uncertain cash flows - Assets subject to operating leases in which the acquire is the lessor - Assets That the Acquirer Intends Not to Use or to Use in a Way Other Than Their Highest and Best Use - Measuring the Fair Value of a Noncontrolling Interest in an Acquiree Measuring Consideration for an acquisition - Fair value criteria - Contingent consideration - Acquisition related costs - Effective Settlement of a Preexisting Relationship between the Acquirer and the Acquiree - Transfer of Consideration in Which the Acquirer Retains Control - Measurement Period - Determining What Is Part of the Acquisition Recognition of assets and liabilities - Reacquired rights - Non-identifiable assets - Identification criteria - Exceptions to identification Sample intangible assets - Marketing related intangible assets - Customer and donor related intangible assets - Artistic related intangible assets - Contract-based intangible assets - Technology based intangible assets
Who Should Attend:
- Controllers - Chief Financial Officers - Vice Presidents of Finance - Assistant Controllers - Accounting Managers - Attorneys - Finance Managers - Treasurers - Auditors - Tax Analysts - Directors of Accounting - Business Valuation Specialists
Lee Klumpp is a Senior Manager with BDO Seidman, LLPs’ Assurance Division in Bethesda, MD. Prior to joining BDO Seidman, …
Mark L. Zyla is a Managing Director of Acuitas, Inc. an Atlanta Georgia based valuation and litigation consultancy firm. Mark …
Jerry Jacobs is a Washington attorney and head of the Nonprofit Organizations practice of the Pillsbury Winthrop Shaw Pittman LLP …
Mr. Cordier is President and CEO of FV Specialists, Inc., a business valuation consulting firm focused on assisting with valuations …
Course Level:
Intermediate
Advance Preparation:
Print and review course materials
Method of Presentation:
On-demand Webcast (CLE)
Prerequisite:
NONE
Course Code:
93921
Total Credits:
2.0 CLE
Login Instructions:
No Access
You are not logged in. Please Login or register to the event to gain access to the materials and login instructions.
Unlock All The Knowledge and Credit You Need
Leading Provider of Online Continuing Education
It's As Easy as 1, 2, 3
Get Your 1-Year All Access Pass For Only $199
SPEAKERS' FIRMS:
About BDO Seidman, LLP
Website: https://www.bdo.com/
About Acuitas, Inc.
Website: https://www.acuitasinc.com/index.htm
About Pillsbury Winthrop Shaw Pittman LLP
Website: https://www.pillsburylaw.com/