Financial Accounting Standard 141 R, effective December 15, may make it more difficult to place a value on acquisitions and may add volatility to the earnings of the buyer, according to FinancialWeek.
“From a pure theoretical standpoint, accounting shouldn’t affect whether you do a deal or not,” said Greg Forsythe, director and business valuation technical specialist at Deloitte Financial Advisory Services.
However, as companies adjust to the broader rules, it could result in delaying negotiations.
The new rules, which bring U.S. accounting practices more closely in line with international financial reporting standards, could affect the planning and execution of merger deals. The disclosure of costs and fees related to those deals could also be setback.
“It’s a big deal in the context of factors that come into play, but at the end of the day the big issue in the merger environment right now is the ability to finance deals and the underlying cash flow of companies,” said Neil Dhar, a partner at PricewaterhouseCoopers transaction services group in Chicago, to Reuters.
Stock transactions will have additional charges and fees paid to bankers, attorneys, or accountants will also be affected.
“It could potentially signal to the market that you are looking at a transaction. You’re going to have to explain why you have advisory fees or transaction costs,” said Dhar.
The global credit crunch has caused companies to avoid acquisitions altogether.
“It may have an effect but it won’t be as significant as the financial crisis we’re experiencing,” said Ketz. “Three years ago I’d say this would be a primary effect but now it’s fallen to a low second place.”